Management Report

Financial Year 2020

Despite the record level of CHF 89.8 million in earned premiums, SERV recorded negative net income of CHF 81.5 million due to high loss expenses of CHF 167.9 million, and thus posted a loss for only the second time in its history.

As an export-oriented economy, Switzerland was particularly impacted by the COVID-19 pandemic. The mechanical, electrical and metal (MEM) industries, which were already under pressure, suffered massive losses in orders and sales that they were only partly able to compensate for by the end of 2020. Mechanical engineering exports in particular only attained a level last seen 30 years ago, despite a recovery in the second half of the year. The upward pressure on the Swiss franc continued, which further weighed on the competitiveness of the Swiss export industry.

Development of New Exposure and New Commitment

After declining significantly by 46 per cent between 2018 and 2019, new commitment again increased in 2020 compared to the previous year, from CHF 2.173 billion to CHF 2.580 billion. The increase in new business volume was not, however, the result of an increase in demand for insurance from SERV. The number of new policies issued continued to decline and amounted to 576 in 2020. This compares to the previous years’ figures of 666 (2019) and 770 (2018). The growth in new exposures was primarily due to the insurance of individual high-volume transactions, which were, however, financed on payment terms of less than 24 months rather than by means of long-term export credits, which had often been the case in the past.

The decline in demand for SERV insurance reflects the huge slump in the Swiss export industry and particularly in the MEM industries as a result of the COVID-19 pandemic. New commitment continued to decline both in mechanical engineering (textile, machine tool and food processing machinery and chemical plants) as well as in power generation and distribution. In mechanical engineering, these fell from CHF 730.4 million to CHF 489.3 million, and in power generation and distribution, from CHF 588.1 million to CHF 236.0 million. Only in the rolling stock and railway technology industry did SERV record an increase in its new commitment from CHF 42.4 million to CHF 1.200 billion in 2020, which is in line with the usual volumes in previous years. New commitment in the chemicals and pharmaceuticals industries had already seen sharp falls over the last five years, and in 2020 decreased again significantly compared to the previous year, from CHF 351.1 million to CHF 188.8 million.

As SERV’s insurance of exports in the rolling stock and railway technology industry was almost exclusively on payment terms of less than 24 months, there was a demand for supplier credit insurance for these transactions. The latter has for some time seen growth in new commitment from CHF 316.1 million to CHF 864.9 million. If these rail and railway exports had been financed with a credit period of ten years or more rather than on short-term payment terms, SERV would have posted even higher premium income in 2020, despite the same level of new exposure.

Surprisingly, demand for working capital insurance and counter guarantees fell short of expectations. The number of working capital insurance policies issued fell further from 62 to 56, and the number of bond guarantees issued also declined by 4 per cent. In contrast, new commitment increased for both products, with working capital insurance seeing a significant rise from CHF 78.7 million to CHF 436.3 million. This is due to the fact that buyers were more reluctant to pre-finance their orders for individual large transactions in the infrastructure sector. SERV had assumed that SMEs in particular would be dependent on liquidity in connection with the pandemic and would therefore make greater use of counter guarantees and working capital insurance.

Overall, 58 per cent of the total new commitment was short-term in nature, i.e. insurance with a risk period of less than 24 months. This proportion is exceptionally high when compared with previous years, but does not necessarily indicate a trend.

Due to the CHF 2.580 billion in new commitment, SERV was able to achieve premium income of CHF 71.6 million. Premium income in 2020 is thus in line with the long-term average.

In contrast to the new commitment, the number of newly issued insurance commitments in principle (ICP) rose significantly from 112 in the previous year to 146. This was, however, associated with a cover volume that, at CHF 1.222 billion, was 13 per cent lower than in 2019. These changes are within the usual range for SERV. Negotiations for the export and financing of gas turbines to Israel and for a major project in Egypt’s textile sector are already at such an advanced stage that final insurance coverage can be expected in the next financial year.

commitment

in CHF million, as at 31 December

by region by industry

by country* by oecd country risk category

commitment by region

in CHF million, as at 31 December

commitment by industry

in CHF million, as at 31 December

commitment by country

in CHF million, as at 31 December

commitment by OECD country Risk category

in CHF million, as at 31 December

Exposure & Commitment

SERV’s exposure came to CHF 8.971 billion as of 31 December 2020. This was slightly higher than in 2019 (CHF 8.773 billion). The commitment amounted to CHF 7.301 billion on the balance sheet date, which represented a slight increase of 3 per cent compared to the previous year’s balance sheet date.

The change in the current exposure portfolio is not solely due to the volume of new business. It is typically influenced by the writing-off of expired IP, the repayment of insured export credits, and the liability period and exchange rate changes of the insured transactions. In 2020, the COVID-19 pandemic confronted SERV with a situation in which insured transactions had to be extended much more frequently than usual due to delivery or construction delays, or the repayment period of insured claims had to be extended, often as a result of restructuring.

As in previous years, SERV’s highest commitment by country was to Turkey, at CHF 922.2 million. The country accounted for 13 per cent of total commitment. Hungary has now moved up to sixth place in the list of countries, as SERV supported a large rolling stock export transaction with working capital insurance and supplier credit insurance after the private insurance market was no longer able to provide sufficient risk capacities for this transaction.

Marketing & Acquisition

In order to mitigate the negative consequences of the government’s COVID-19 containment measures on the Swiss export industry, the Federal Council has lowered the requirements regarding the amount of Swiss content in the order value for SERV insurance and increased the maximum cover ratios for counter guarantees to 100 per cent and for working capital insurance to 95 per cent. SERV has exercised its discretion and temporarily lifted the subsidiarity restrictions for export transactions with a risk period of less than 24 months to EU member states and other high-income countries until 30 June 2021. It has done so in line with the measures of the European Commission, with which it aligns itself in accordance with the SERV Ordinance (SERV-V). In addition, SERV has simplified its checking and decision-making processes in order to make it quicker and easier for exporters to obtain an insurance offer when needed.

“SERV is an important partner for Swiss SMEs; particularly when export risks escalate.”

Heribert Knittlmayer

Chief Insurance Officer

International Relations

In addition to the COVID-19 pandemic, international negotiations in 2020 were dominated first and foremost by the suspension of the International Working Group (IWG). Its aim was to draw up a replacement to the Arrangement on Officially Supported Export Credits (Arrangement), with the involvement of all the major exporting nations (including China and other G20 member countries). This was because not all of the countries that comprise it had previously been subject to a regulatory framework on public financing of exports, which hugely increased the risk of distortions of competition.

The failure of the negotiations within the framework of the IWG will have a major influence on the development of the only current regulatory framework for export financing, the Arrangement, which has been in force since 1978 and is affiliated to the OECD Trade Committee. It is in accordance with the principles of the World Trade Organization (WTO), which aims to prevent the official subsidising of exports. The Arrangement is legally binding in the EU countries and is adhered to in the form of a gentlemen’s agreement by all other members, including Switzerland.

The Arrangement is expected to undergo a fundamental revision in the coming years in order to reduce the complexity of its applicability and to update its current basic principles, which increasingly offer too little flexibility for current export financing practice. The EU, which, due to the legally binding nature of the arrangement, is most directly affected by the resulting competitive disadvantages, is the main driver of this modernisation process.

At the beginning of 2020, SERV commenced a two-year term as chair of the Berne Union’s ECA Committee, which is made up of all the world’s major export credit agencies (ECAs). In 2020, the regular discussions on trade and developments in the member states were accompanied by a particular focus on the measures taken in the COVID-19 crisis and the topic of sustainable development and climate change.

In addition to multilateral cooperation, SERV is constantly engaged in maintaining and expanding its bilateral relationships with other ECAs. Last year in particular, SERV benefited from this exchange and maintained an intensive dialogue with its partners in its trilateral partnership with Germany and Austria, and also with the other ECAs regarding developments in the COVID-19 crisis.

OECD country risk categories

As at 31 December 2020