Following the previous year’s loss of CHF 81.5 million, SERV recorded a profit of CHF 88.1 million in the 2021 financial year. In addition to earned premiums of CHF 79.4 million, the unusually negative loss expenses (income) of CHF 5.9 million also contributed to the pleasing annual result.
Although new commitment amounted to only CHF 1.933 billion, 25 per cent less than in the previous year, SERV posted premium income of CHF 83.5 million. Premiums were driven primarily by just one large transaction, in which SERV provided the Swedish export credit agency (ECA) EKN with reinsurance for the Swiss share of the project. The insurance income of CHF 90.0 million also includes interest income from debt rescheduling of CHF 10.9 million. After posting exceptionally high loss expenses in the previous year, SERV was able to release some provisions for imminent losses in 2021 and recorded successes in recovery. This resulted in negative loss expenses (income) of CHF 5.9 million. The principle of prudence in the accounting of business transactions was apparent in this regard. Some of the imminent losses reported in the previous year led to high loss expenses in 2020 and could be averted in 2021. At CHF 11.7 million, the debt rescheduling income was in line with the figure for the previous year. Personnel and non-personnel expenses rose by CHF 4.6 million compared to 2020, while financial income was positive at CHF 0.5 million compared to the previous year. In total, this resulted in an operating profit of CHF 88.1 million. As SERV is only permitted by law to invest its capital with the Swiss Confederation, it was again unable to generate income from cash investments in 2021. As a result, its net profit matched the operating profit.
SERV’s Measures to Support its Clients
The impact of the COVID-19 pandemic and its sometimes unexpected effects, such as supply bottlenecks for primary products and problems with international logistics, was a continuing theme in 2021. To take account of this challenging business environment, SERV maintained the simplifications it had created in the previous year for its clients and created new ones. The measures to support exporters during the COVID-19 pandemic that were approved by the Federal Council in 2020 remain in place. In addition, SERV introduced a fast-track risk analysis process to speed up the processing of smaller transactions.
Premium income
in CHF million
84
new commitment
–25%
“I’m pleased that our Pathfinding Initiative is beginning to bear fruit and I’m confident that the initiative will result in us insuring more large-scale projects in the future. Swiss SMEs benefit by participating in such projects.”
Lars Ponterlitschek
Chief Insurance Officer
Marketing & Acquisition
Despite the COVID-19 pandemic, SERV continued to pursue its Pathfinding Initiative vigorously. By actively marketing in buyers’ markets, it gives Swiss exporters access to major international projects at an early stage, particularly those in the infrastructure sector. The Pathfinding Initiative is the perfect accompaniment to the initiative launched by the Federal Council at the end of 2019 to give Swiss companies better access to major foreign projects. In 2021, the collaboration in Team Switzerland, which consists of SECO, Switzerland Global Enterprise (S-GE), Swissmem, Swissrail and SERV, was further expanded and also confirmed by a memorandum of understanding and advertised through a variety of measures.
SERV has already concluded an insurance transaction as a result of the Pathfinding Initiative. This involves the renewal and extension of a railway line in Ghana (cf. In the Field, 100 kilometres of railway in Ghana with Swiss participation). Several other projects are also in the pipeline. Seven foreign general contractors have opened an office in Switzerland and are in contact with over 60 Swiss companies. SERV will expand its acquisition team by two positions in 2022 and step up this initiative.
New exposure
in CHF million
Insurance policies (IP)
(new commitment)
Total
Insurance
commitments
in principle (ICP)
Total new exposure
short term
medium / long-term
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
Countries
Turkey
6.5
4.2
49.2
121.6
55.7
125.8
592.1
8.1
647.8
133.9
Russia
320.4
41.8
2.8
132.6
323.2
174.4
111.9
20.7
435.1
195.1
Ghana
0.3
0.8
264.3
–
264.6
0.8
156.2
–
420.8
0.8
Kazakhstan
0.5
0.1
–
–
0.5
0.1
343.5
–
344.0
0.1
Luxembourg
–
–
–
–
–
–
306.1
1.1
306.1
1.1
Uzbekistan
–
–
88.5
59.1
88.5
59.1
207.7
43.6
296.2
102.7
Egypt
28.0
10.0
0.8
0.6
28.8
10.6
250.8
161.1
279.6
171.7
United Arab
Emirates
184.3
18.2
8.6
17.2
192.9
35.4
85.6
19.1
278.5
54.5
Other countries
565.8
1 419.0
412.7
754.3
978.5
2 173.3
660.1
968.6
1 638.6
3 141.9
Total
1 105.8
1 494.1
826.9
1 085.4
1 932.7
2 579.5
2 714.0
1 222.3
4 646.7
3 801.8
Industries
Mechanical
engineering
290.6
194.5
337.5
294.8
628.1
489.3
777.0
464.5
1 405.1
953.8
Rolling stock &
railway technology
27.7
970.9
139.2
228.8
166.9
1 199.7
493.3
4.8
660.2
1 204.5
Engineering
96.5
5.0
3.3
20.2
99.8
25.2
84.0
85.0
183.8
110.2
Chemicals & pharmaceuticals
176.8
188.8
1.4
–
178.2
188.8
–
–
178.2
188.8
Power generation
& distribution
6.1
9.3
48.0
226.7
54.1
236.0
67.8
398.8
121.9
634.8
Electronics
11.4
45.5
3.1
139.0
14.5
184.5
18.2
31.8
32.7
216.3
Metalworking
20.8
14.6
9.0
7.3
29.8
21.9
0.5
6.3
30.3
28.2
Other industries
475.9
65.5
285.4
168.6
761.3
234.1
1 273.2
231.1
2 034.5
465.2
Total
1 105.8
1 494.1
826.9
1 085.4
1 932.7
2 579.5
2 714.0
1 222.3
4 646.7
3 801.8
Development of New Exposure and New Commitment
SERV approved 721 new applications in 2021, of which 568 were insurance policies (IPs) and 153 insurance commitments in principle (ICPs). New commitments fell by 25 per cent to CHF 1.933 billion. The volumes of insured transactions ranged widely, from CHF 19 000 to CHF 264.3 million. The majority of newly acquired insurance policies were small in volume (median of CHF 0.6 million). Almost 78 per cent of clients in 2021 were SMEs. The five largest individual commitments account for almost 40 per cent of the total new commitment. As in previous years, new commitments were predominately short-term in 2021.
Since 2017, the demand for working capital insurance (WCI) and counter guarantees (CGs) has declined continuously in terms of both numbers and exposure. The number of WCIs issued decreased further from 56 to 39 in 2021, with a fall in volume from CHF 436.3 to CHF 347.8 million. There was also a decline in the number of CGs issued, with these falling from 168 to 143. Their volume amounted to only CHF 120.8 million, some CHF 177.3 million less than in the previous year. The assumption had been that SMEs in particular would be dependent on liquidity in connection with the pandemic and would therefore make greater use of CGs and WCIs, which has turned out not to be the case since 2020.
Demand for ICPs followed a completely different trajectory: a year-on-year increase of 122 per cent to CHF 2.714 billion, with the transactions examined and accepted in principle including some large projects in the infrastructure sector with long credit periods, some of which resulted from SERV’s Pathfinding Initiative. SERV issued six ICPs, each worth hundreds of millions. This development allows us to conclude that SERV’s clients are again seeing a greater number of incoming orders following the temporary collapse in Swiss exports in connection with the COVID-19 pandemic, particularly in the machinery, electrical and metal industry (MEM industry). SERV’s business pipeline is well filled for the coming year, with the rail vehicles and railway infrastructure, power generation and textile machinery industry sectors featuring in particular. Multi-buyer insurance for the pharmaceutical industry declined further to CHF 178.2 million.
SERV’s exposure amounted to CHF 9.924 billion as at 31 December 2021, almost CHF 1 billion higher than on the previous year’s balance sheet date. The commitment on the balance sheet date was CHF 7.089 billion, which was some CHF 200 million less than on the same date the previous year. The increase in exposure resulted from the new ICPs.
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 IPs, the repayment of insured export credits, and the liability period and exchange rate changes of the insured transactions.
As in previous years, SERV’s highest exposure by country was to Turkey, at CHF 1.327 billion. Ghana has moved up to sixth place in the country list as SERV has reinsured the Swiss share for a major infrastructure project for the Swedish ECA, EKN. Uzbekistan has climbed to fifth place in the country list because SERV has insured some new projects there, primarily in the textile sector.
International Relations
International negotiations on government support for export credits were dominated by the COVID-19 pandemic and climate issues in 2021, the latter of which acquired added momentum as a result of the UN Climate Change Conference (COP26) in November 2021. For example, it was agreed that, as a matter of principle, no new coal-fired power plants may be supported under the “Arrangement on Officially Supported Export Credits” (the “Arrangement”). SERV has never insured coal-fired power plants in the past and already implicitly abides by the rule now laid down in the Arrangement.
In addition to efforts to take greater account of climate targets in the Arrangement, a working group of experts has started to elaborate proposals to reform the Arrangement. The aim is to simplify the rules and increase their flexibility in order to reduce the competitive disadvantages resulting from the relatively rigid rules vis-à-vis non-OECD countries. Nonetheless, the rules must remain in line with the principles of the World Trade Organisation (WTO), which strives to prevent official subsidising of exports. SERV is actively involved in ensuring that the Arrangement is adapted to current circumstances and continues to guarantee a level playing field without generating an excessive administrative burden.
SERV has never insured coal-fired power plants in the past and already implicitly abides by the rule now laid down in the Arrangement.
SERV has chaired the committee for the ECAs of the Berne Union for the past two years. The priorities set have covered the changing role of ECAs, the impact of the COVID-19 pandemic, the climate policy and strategy of ECAs, and discussions with major export-financing international banks.
In addition to multilateral cooperation, SERV attaches great importance to maintaining and expanding its bilateral relationships. SERV maintains regular exchanges with other ECAs, including an annual trilateral meeting with Germany and Austria, which was able to be held on a face-to-face basis again in Germany in 2021.
OECD country risk categories
As at 31 December 2021
Losses and Claims
SERV reported several small and some medium-sized losses in the year under review, as well as a more significant loss in Turkey, which had, however, been on the horizon for some time. It was again able to avert some losses through prompt, active pre-loss management using measures such as restructuring due dates and extending cover. The situation has stabilised when compared to the start of the pandemic, which meant that SERV received payments made according to the normal repayment schedule in some restructured cases. SERV made indemnity payments totalling CHF 109.4 million in the year under review, including CHF 72.6 million for 28 new claims.
Claims
+28
In recovery, SERV processed 214 claims in a total of 39 countries. Depending on the country and the debtor’s willingness or ability to pay, recovery is often a challenging, protracted process. Initiation of legal action in the debtor country concerned does, however, give rise to some successes. Support from political actors such as embassies can also have a very positive effect on recovery in individual cases. The largest recoveries in the year under review came from Switzerland at CHF 4.3 million, from the United Arab Emirates at CHF 3.9 million and from Brazil at CHF 2.3 million.
Indemnity payments
in CHF million
109
Restructuring & Debt Rescheduling
The international agreement on a Debt Service Suspension Initiative (DSSI) for the poorest countries, reached in 2020 as a result of the COVID-19 crisis, also impacted on the 2021 financial year: of the countries that have active debt rescheduling agreements with Switzerland, Pakistan and Cameroon have submitted requests under the DSSI to defer the 2020 maturities until the end of 2021. Some of the bilateral agreements have already been concluded, while some deferrals under the DSSI are still pending.
Argentina and Cuba, which do not qualify for DSSI but have nonetheless also been severely affected by the impact of the COVID-19 pandemic, were also unable to meet their payment obligations in 2021, although Argentina did make a partial interest payment in mid-2021. Cuba agreed a new repayment schedule with its creditors in 2021.
The G20, the countries belonging to the Paris Club and other creditor countries agreed on a “Common Framework for debt treatment beyond the DSSI” (the “Common Framework”) in November 2020 to assist countries that require support beyond that of the DSSI to bridge their liquidity problems or whose sovereign debt is unsustainable. In the case of Ethiopia and Zambia, which have submitted an application under the Common Framework, both SERV and Switzerland are affected by their existing exposure there.
SERV is also affected by the replacement of LIBOR at the end of 2021: six countries’ debt rescheduling agreements are based on LIBOR and will need to be adjusted to a new interest rate basis. These adjustments are under way. The other countries listed in the table “Credit Balances from Debt Rescheduling Agreements (with value adjustment)” (cf. PDF Notes on the Financial Statements, p. 59) with which debt rescheduling agreements were concluded in the Paris Club were able to meet their payment obligations.
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