CHAPTER XXXII EXPORT CREDIT INSURANCE

Functions of Export Credit Insurance Risks Covered Risks Not Covered Export Credit Insurance Programs

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Export Credit Insurance
Purpose:
To protect exporters against the risk of nonpayment by foreign debtors due to commercial or political reasons

When:
When exports being conducted without an irrevocable, confirmed Letter of Credit – Exports on Open Account or D/A or D/P
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Functions of Export Credit Insurance
1) Reduces export risk of not being paid 2) Enhances an exporter's ability to obtain favorable export financing 3) Enables an exporter to offer competitive credit terms to an importer 4) Enables an exporter to penetrate high-risk foreign markets 5) Provides greater liquidity and flexibility of foreign accounts receivable
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Risks Covered
1) Commercial Risks
 Inability or unwillingness of a foreign buyer to pay due to commercial reasons
a. b. c. d. e. f. Economic deterioration in the buyer's market Fluctuations in demand Unanticipated competition Technological changes Buyer’s insolvency, bankruptcy, default Natural disasters: floods, fires and earthquakes

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Risks Covered
2) Political Risks
a. b. c. d. e. War Revolution and insurrection Boycotts Expropriation of buyer's business Revocation of import or export licenses after shipping f. Foreign exchange control: Currency inconvertibility g. Shifts in tariffs
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Risks Not Covered 1) Shipments not complying with requirements of coverage 2) Shipments not reported to the insurer 3) Shipments which buyer refuses to accept 4) Disputed shipments until they become a legal obligation of the buyer 5) Losses due to the fault of exporter. agent or administrator 6) Claims not filed timely with the insurer 6 .

Export Credit Insurance Programs  Export-Import Bank of the United States (ExIm Bank)  FCIA Management Company. (FCIA)  Euler Hermes American Credit Indemnity (AIC)  Coface North America  Lloyd’s London 7 . Inc.

Export-Import Bank of the United States (Ex-Im Bank)  Short-Term Multi-Buyer Export Credit Insurance Policy  Short-Term Single-Buyer Export Credit Insurance Policy  Medium-Term Single-Buyer Export Credit Insurance Policy  Small Business Multi-Buyer Export Credit Insurance Policy  Small Business Express Export Credit Insurance Policy  Lease Export Credit Insurance Policy 8 .

Short-Term Multi-Buyer Export Credit Insurance Policy  Policy Description  One-year blanket policy insuring short-term export credit sales to many different buyers  Repayment terms up to 180 days.S. content excluding markup and non-military goods 9 . 360 days for qualifying transactions: agricultural commodities. fertilizer and durables  Products of minimum 51% U.

Short-Term Multi-Buyer Export Credit Insurance Policy Coverage  95% of the invoice amount for both commercial risks and political risks  98% for Bulk agricultural commodities  100% for sovereign obligors 10 .

Short-Term Multi-Buyer Export Credit Insurance Policy Credit Limits  Credit limits are granted by Ex-Im Bank in accordance with exporter’s experience  Credit limits allow exporter to extend insured credit without prior approval from Ex-Im Bank  Ex-Im Bank must pre-approve amount over the credit limit in the policy and in certain countries per Country Limitation Schedule  Exporter must obtain credit information on the buyer to show its creditworthiness 11 .

and previous export experience of the exporter. transaction type. spread of country risk. refundable advance premium of $500 to get a policy. No annual minimum premium 12 . – Premiums are paid monthly with shipment report – Exporter must pay a one-time.Short-Term Multi-Buyer Export Credit Insurance Policy • Premium Rates and Payments – Premium rates are calculated based on type of buyers. length of credit terms.

military goods – Overdue report: Past due over 90 days on over $100.000 13 . except Irrevocable confirmed L/C and advance payment.Short-Term Multi-Buyer Export Credit Insurance Policy • Reporting Requirements – Shipment report: By the end of next month with a premium check – Include all shipments under Irrevocable unconfirmed L/C. Open A/C. D/A. D/P.

Short-Term Multi-Buyer Export Credit Insurance Policy Filing Claims:  To be filed between 90 days after due date and 240 days  Ex-Im Bank will pay valid claim in 60 days of receiving complete claim documents 14 .

Short-Term Multi-Buyer Export Credit Insurance Policy  Characteristics:  Policy proceeds assignable with prior approval to lenders  Deductible may be fixed for policy year & vary with volume  Political risk only policy available  Special coverage with special endorsement and additional premiums • Preshipment Coverage • Non-acceptance Coverage • Consignment Stock Coverage • Sales from Overseas Warehouse Coverage 15 .

S. fertilizer. consumer durables. content and non-military goods  Repayment terms: Up to 180 days & 360 days for qualifying transactions: agricultural commodities. capital equipment  Submit application on buyer with credit report & trade references 16 .Short-Term Single-Buyer Export Credit Insurance Policy Policy Description:  Single or multiple shipments to a single foreign buyer  Goods of minimum 51% U.

Short-Term Single-Buyer Export Credit Insurance Policy Amount of Coverage:     Sovereign obligors 100% Public & Private sector obligors 90% Unconfirmed Letter of Credit transactions 95% Bulk agriculture 98%  No first loss deductible 17 .

500 18 .Short-Term Single-Buyer Export Credit Insurance Policy • Minimum Premiums – Sovereign Buyers or Political risk only: • Small Business Exporter: $500 • Other $750 – Financial Institutes: • Small Business Exporter: $500 • Other $1.500 – Non-Financial Institutes: • Small Business Exporter: $500 • Other: $2.

Short-Term Single-Buyer Export Credit Insurance Policy Claims and Payments  Must file a Notice of Claim and Proof of Loss Form between 90 days and 240 days from the due date  Ex-Im Bank will pay within 60 days of receiving complete claim documents 19 .

Short-Term Single-Buyer Export Credit Insurance Policy Characteristics  Exporter is not required to insure all credit buyers  Policy proceeds may be assigned with prior approval  No first lost deductible  Special coverage with special endorsement & additional premiums • Preshipment Coverage • Non-acceptance Coverage • Consignment Stock Coverage • Sales from Overseas Warehouse Coverage 20 .

S. capital goods and related services  One to five years.Medium-Term Single-Buyer Export Credit Insurance Policy  Policy Description:  U. Occasionally longer payment terms up to 7 years  No-military goods  Written on a case-by-case basis 21 .

Medium-Term Single-Buyer Export Credit Insurance Policy  Coverage:  15% cash down payment by a foreign buyer before delivery of the goods  Lesser of 85% of exporter’s contract value or 100% of the U. content  100% of financed portion against commercial and political risks  Creditworthy foreign buyer in acceptable country per Country Limitation Schedule 22 .S.

000 to less than $350.000 $175.000 $350.000 $80.000 to less than $175.Medium-Term Single-Buyer Export Credit Insurance Policy • Repayment Terms – – – – Less than $80.000 or more 2 years 3 years 4 years 5 years 23 .

by last business day of the month following each shipment 24 .Medium-Term Single-Buyer Export Credit Insurance Policy • Premium Payments – Premium amount is determined by using a riskbased pricing system. premium must be paid before a policy is issued – Under a repetitive policy. No published rates – Under a single shipment policy.

Medium-Term Single-Buyer Export Credit Insurance Policy • Filing Claims – Report all buyers who fall into default within 30 days on a monthly basis – Waiting periods and deadlines for filing claims vary with the type of loss incurred 25 .

Small Business Multi-Buyer Export Credit Insurance Policy Policy Purpose:  Small businesses new to exporting or only occasionally exporting  Help small businesses increase international sales by extending competitive credit terms while minimizing credit risks  Also financing tool by offering insured foreign receivables as collaterals 26 .

fertilizer. consumer durables 27 . content excluding markup  Repayment terms: Up to 180 days for most goods  360 days for qualifying transactions: agricultural commodities.S. Renewed annually  51% U.Small Business Multi-Buyer Export Credit Insurance Policy Policy Description:  All shipments on credit terms to all eligible countries  Policy period: 1 year.

Small Business Multi-Buyer Export Credit Insurance Policy Coverage:  95% for commercial risks  95% for political risks  No first-loss deductible 28 .

SBA under North American Industry Classification System (NAICS)  Annual export credit sales volume averaging $7.5 million or less for past 3 years  Positive net worth and at least one year successful operating history 29 .S.Small Business Multi-Buyer Export Credit Insurance Policy Eligible Exporters:  Must be a small business determined by U.

Small Business Multi-Buyer Export Credit Insurance Policy Premium Rates and Payments:  Premiums paid according to a rate schedule  One-time refundable advance premium $500. but no minimum annual premium  Submit a monthly Report of shipment with with premium payment 30 .

Small Business Multi-Buyer Export Credit Insurance Policy Credit Limits:  Credit limits without prior approval from EX-Im Bank is stated in the policy  Granted in accordance with exporter’s experience  Exporter must obtain credit information on buyer to show its creditworthiness  EX-Im Bank must pre-approve amounts over the credit limits in the policy 31 .

Small Business Multi-Buyer Export Credit Insurance Policy Policy Assignment:  Can assign policy proceeds to lenders with approval of Ex-Im Bank 32 .

– Credit reports on all buyers the exporter elects to insure are made by the Ex-Im Bank free of charge.000 on foreign buyers within five workdays.Small Business Express Export Credit Insurance Policy  Policy Description: – A “named buyer” policy – A streamlined online application provides a policy quote and credit decisions up to $300. 33 .

– No application fees. 34 . – A one-time.Small Business Express Export Credit Insurance Policy • Policy Description: – Insurance premiums are payable only upon an exporter’s shipment to a buyer preapproved by the Ex-Im Bank. refundable $500 advance deposit is required at a quotation acceptance to issue the policy.

35 . Ten or less existing foreign buyers sold to on credit terms A DUNS # with Dun & Bradstreet.Small Business Express Export Credit Insurance Policy Applicant’s Qualifications A small business An average of less than $7.5 million in export credit sales over the last three years At least one year business operating history A positive net worth.

content.S. – Maximum credit terms are generally 180 days.Small Business Express Export Credit Insurance Policy • Eligible Transactions – Exported products manufactured in and shipped from the United States – More than 50 percent U. bulk. – but up to 360 days for capital goods. unprocessed agricultural commodities or other qualifying transactions. 36 .

37 . revolution. bankruptcy. currency inconvertibility There is no first-loss deductible. cancellation of import or export licenses. and default 95% Political losses War.Small Business Express Export Credit Insurance Policy Coverage 95% Commercial losses Insolvency.

• $1. • $1.35 for 121-180 days of payment terms. 38 .65 per $100 of gross invoice value for 1-60 days.Small Business Express Export Credit Insurance Policy • Premium Rates and Monthly Shipment Report – The premium rates for private sector buyers are • $0.06 for 61-120 days. – Shipments must be reported and premiums have to be paid by the last day of the month following month of shipment.

39 .000. – Claims may be filed no earlier than 90 days and no later than 240 days after the due date – Insurance claims are paid within 60 days of receipt of all required documents.Small Business Express Export Credit Insurance Policy • Overdue Invoices and Filing Claims – Online overdue reports on past due over 90 days for more than $25.

30-yr useful life). Aircraft.Lease Export Credit Insurance Policy • Policy Description • Operating lease – Lease whose term is short compared to the useful life of the leased asset with a high residual value at end of lease – Ship (10-yr lease. Automobile • Finance lease: One of the conditions – Ownership transferred to the lessee at the end of lease – Lease term 75% or more of asset’s useful life – Present value of lease payments 90% or more of original cost – Option to buy at much less than fair market value 40 .

Lease Export Credit Insurance Policy • Eligible Lessors – any leasing company. 41 . foreign or domestic. manufacturer. or other entity.S.-manufactured equipment and services outside the United States. bank. that leases or finances leases of U.

Usually is for up to five months – Coverage Against Governmental Prevention of Repossession • Political risks of prevention of repossession • 100% 42 .Lease Export Credit Insurance Policy • Operating Lease Export Credit Insurance Policy – Coverage for Streams of Payments • the stream of payments falling due during a repossession-efforts period after default of the lessee. • 100% for sovereign lessees and 90% for nonsovereign lessees.

– 15% advance payment from the lessee to the lessor Ex-Im Bank insures remaining 85 percent of the lease transaction. – Coverage is 100 43 .Lease Export Credit Insurance Policy • Finance Lease Export Credit Insurance Policy – Lease in which there is little residual value and ownership is transferred to the lessee at the end of the lease.

44 . – A separate policy is issued for each lease insured with Ex-Im Bank.Lease Export Credit Insurance Policy • Policy Issuance – Both the Operating Lease and the Finance Lease policies cover single transactions.

Lease Export Credit Insurance Policy • Claims • Operating Lease Policy – repossessed or the end of the repossession-efforts period and not later than 120 days after this period. 45 . • Ex-Im Bank pays properly submitted and documented lease policy claims within 60 days of receipt of a claim. • Finance Lease Policy – Claims may be filed from 120 to 240 days after default.

S. exports through a credit insurance safety net  In 1991. 46 .FCIA Management Company  Foreign Credit Insurance Association (FCIA) was formed in 1961 as an Association of 50 leading insurance companies in cooperation with Ex-Im Bank of the U. the Association became solely a private entity as FCIA Management. Inc.  To promote U.S.

FCIA Management Company  FCIA is now a unit of Great American Insurance Co..  All policies issued by FCIA are written in the name of Great American Insurance. Georgia 47 . Ohio. Inc. of Cincinnati.  FCIA makes its products available exclusively through brokers and independent agents  International Associates in Downy. Inc. in Augusta. California  Export Insurance Services.

Euler Hermes American Credit Indemnity (ACI)  Euler Hermes is the world’s leading credit insurer with a 34% share of the market.  Its operations in more than 50 countries and assist companies of all sizes and in every industry sector to develop their business securely 48 .

 In 2003.  It provides accounts receivable insurance and political risk insurance 49 . a world leader in trade-risk management.Coface North America  Coface North America is a unit of the Coface Grouop. Coface acquired the CNA Credit unit to enter the credit insurance market in the United States and Canada.

• Credit insurance and political risks insurance to the international business community 50 .Lloyd’s of London • Lloyd's is not a company. it's a market where its members join together as syndicates to insure and reinsure risk. • Specialists with underwriting expertise and talent. • Conducting business in over 200 countries and territories worldwide.

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