* Insurers covered 11 pct of trade in 2009 -- $1.4 trln
* Long-term business jumped 25 pct as trade contracted
By Jonathan Lynn
GENEVA, April 21 (Reuters) - Conditions in the market for trade finance are stabilising with banks again able to provide funding and prices coming down, the International Union of Credit and Investment Insurers said on Wednesday.
But banks are still seeking credit insurance to cover medium and long-term transactions of more than one year, said Kimberly Wiehl, secretary-general of the association known as the Berne Union which groups private insurers and government-backed export-credit agencies.
The comments indicate that the panic that swept through financial markets in late 2008 and affected the simple and centuries-old instruments that keep global trade flowing has not entirely dissipated, and that insurance is still needed to reinforce traditional contacts and work processes in the sector.
Fears that a drought of these funds could intensify the collapse in world trade after the financial crisis prompted the G20, at its London summit a year ago, to mobilise a $250 billion two-year package of trade finance through multilateral development banks and export-credit agencies.
The result was a big increase in 2009 in cover by export-credit agencies especially for medium and long-term business, even as trade suffered its biggest fall since World War Two.
"This was a proactive way of helping their clients to sell overseas," Wiehl told Reuters. "Really they were the only option in town."
Wiehl said that cover by export credit-agencies, reimbursing a bank if its partners in a trade finance deal fail to pay up, had effectively become a condition for medium and long-term business.
And export-credit agencies able to lend as well as insure, such as Export Development Canada or the U.S. Eximbank saw huge increases in activity last year, she said.
TRADE REBOUNDING
Trade economists say the bulk of the contraction in trade in 2009 -- put at 12.2 percent in volume terms by the World Trade Organization -- was due to the collapse in demand following the financial crisis. Shortages of trade finance ultimately accounted for only a small proportion of the decline.
But last year there were very real fears that a lack of funding could bring trade to a standstill, while rising prices could push small businesses and developing countries out of the market.
The WTO forecasts trade will rebound by 9.5 percent this year as the global economy recovers.
The Berne Union does not yet have data for 2010. But in 2009 its members insured $1.4 trillion of trade and investment, 9 percent less than in 2008.
With imports falling in value terms by 25 percent to $11.9 trillion, according to the International Monetary Fund, the share of global trade covered by Berne Union members' insurance rose to 11 from 9 percent.
"Insurers were able to stay in the market even as less trade was happening," Wiehl said.
The figures include a fall of 13 percent to $1.1 trillion of short-term business by private and government-backed insurers, and an "extraordinary" 25 percent rise to nearly $200 billion for medium and long-term business by government-backed agencies.
"In both cases a lot of this focused around customers trying to get bank liquidity," she said.
Some economists have argued that the need for insurance drove up the overall cost of trade finance, especially for small businesses or exporters in developing countries.
But in some cases trade finance was simply not available without insurance cover, Wiehl said.