CHAPTER XXXII EXPORT CREDIT INSURANCE

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

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 Key executives becoming inactive Natural disasters: floods, fires and earthquakes

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
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Export Credit Insurance Programs

Export-Import Bank of the United States (ExIm Bank) FCIA Management Company, Inc. (FCIA) American International Group (AIG) Euler American Credit Indemnity (AIC) CNA Export Credit Lloyds London Chubb Corporation
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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 Leasing Export Credit Insurance Policy
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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, 360 days for agricultural commodities, fertilizer and consumer durables by special endorsement Products of minimum 51% U.S. content excluding markup and non-military goods Exporter must pay refundable minimum advance premium of $500 annually
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Short-Term Multi-Buyer Export Credit Insurance Policy

Coverage Options:

Split coverage:

Equalized coverage:

100% for political loss and 90% for commercial loss, 98% for agricultural sales Exporter absorbs a first loss deductible in addition to retaining10% of commercial risks 95% for political and commercial loss. 98% for agricultural sales Exporter absorbs a first loss deductible in addition to retaining 5% of both the political and commercial risk.
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Short-Term Multi-Buyer Export Credit Insurance Policy

I. Credit Limits: Discretionary Credit Limit (DCL)
Highest amount of insured credit outstanding to one foreign buyer without prior approval from Ex-Im Bank
1) 2) Credit information DCL: Two credit reports & Conditions of Country Limitation Schedule Ledger Experience DCL: Past business experience & Conditions of Country Limitation Schedule

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Short-Term Multi-Buyer Export Credit Insurance Policy

II. Credit Limits: Special Buyer Credit Limit (SBCL) Credit limit outstanding to any one foreign buyer at any one time Must apply for SBCL if DCL too low

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Short-Term Multi-Buyer Export Credit Insurance Policy

Reporting Requirements: Report of Premiums Payable listing all eligible shipments with premium check monthly Overdue Report Form: 90 days overdue on $100,000 or more
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Short-Term Multi-Buyer Export Credit Insurance Policy

Claims:
To be filed between 90 days after due date and 240 days with Notice of Claim and Proof of Loss Ex-Im Bank will pay valid claim in 60 days of receiving complete claim documents
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Short-Term Multi-Buyer Export Credit Insurance Policy

Characteristics:

Policy proceeds assignable with prior

approval Deductible may be fixed for policy year & vary with volume Special coverage with special endorsement and additional premiums

Preshipment Coverage Non-acceptance Coverage Consignment Stock Coverage Sales from Overseas Warehouse Coverage

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Short-Term Single-Buyer Export Credit Insurance Policy

Policy Description:

Single or multiple shipments to a single

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

Amount of Coverage:
Sovereign obligors 100% Public & Private sector obligors 90% Letter of Credit transactions 95% Bulk agriculture 98%

No first loss deductible

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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

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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 Special coverage with special endorsement & additional premiums Preshipment Coverage Non-acceptance Coverage Consignment Stock Coverage Sales from Overseas Warehouse Coverage
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Medium-Term Single-Buyer Export Credit Insurance Policy

Policy Description:
U.S. capital goods and related services
One to five years. Occasionally longer payment terms up to 7 years

No-military goods
Written on a case-by-case basis

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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 exporters contract value or 100% of the U.S. content 100% of financed portion against commercial and political risks Creditworthy foreign buyer in acceptable country per Country Limitation Schedule
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Medium-Term Single-Buyer Export Credit Insurance Policy

Premium: No published rates. Can obtain nonbinding rate

Claims: Monthly report on default accounts within

60 days of default To be filed no later than 240 days from the date of default A 180-day waiting period on commercial default If foreign buyer bankrupt or insolvent, or political default, can file immediately 22

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
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Small Business Multi-Buyer Export Credit Insurance Policy

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

Coverage:
95% for commercial risks 100% for political risks No first-loss deductible

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Small Business Multi-Buyer Export Credit Insurance Policy

Eligible Exporters:
Must be a small business determined by U.S. SBA under North American Industry Classification System (NAICS) Annual export credit sales volume averaging $5 million or less for past two fiscal years Positive net worth and at least one year successful operating history
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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 premium Submit a monthly Report of Premiums Payable with premium payment

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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 exporters experience Exporter must obtain credit information on buyer to show its creditworthiness Need EX-Im Banks pre-approval for amounts over the credit limits in the policy
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Small Business Multi-Buyer Export Credit Insurance Policy

Overdue Invoices and Filing Claims: Monthly report on past due accounts over
90 days and over $100,000 Claims to be filed between 90 and 240 days Exim Bank pays valid claims within 60 days of receiving complete documentation

Policy Assignment: Can assign policy proceeds to lenders

with approval of Ex-Im Bank
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Leasing Export Credit Insurance Policy

Policy Description:
Two types of credit insurance policy for U.S. leasing industry Operating Lease Policy
Financing Lease Policy

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Leasing Export Credit Insurance Policy

Eligible Lessors:
Leasing company, manufacturer, bank, or other entity, foreign or domestic Leases or participates in the financing of leases of U.S.-manufactured equipment and services outside the U.S.

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 Operating Lease Policy Divided into two part which may be purchased together or separately I. Coverage for Streams of Payments Provides coverage for the stream of payments falling due during a repossession-efforts period after default of the lease. The length is usually for up to five (5) months after default 100% for sovereign leases and 90% for non-sovereign leases
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Leasing Export Credit Insurance Policy

Leasing Export Credit Insurance Policy

Operating Lease Policy II. Coverage Against Governmental Prevention
of Repossession (GPR) Insures the political risk of prevention of repossession of the leased products due to specific actions, i.e., expropriation, confiscation, and cancellation of export license. 100% for all lease types
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Leasing Export Credit Insurance Policy

Financing Lease Policy
Covers a lease in which there is little residual value and ownership is transferred to the lessee at the end of the lease 15% advance payment by the lessee to the lessor 100% coverage Assignment of proceeds to a financial institution with a prior approval of the Ex-Im Bank
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Leasing Export Credit Insurance Policy

Policy Issuance:
Both policies cover single transactions.

Claims:
Operating Lease Policy: Not earlier than the end of repossession-efforts period and not later than 120 days after this period. Financing Lease Policy: Between 90 and 240 days after default
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Leasing Export Credit Insurance Policy

Assignment of Proceeds:
May be assigned to financial institution, subject to Ex-Im Bank approval

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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.S. To promote U.S. exports through a credit insurance safety net

In 1992, the Association became solely a private entity as FCIA Management, Inc.
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FCIA Management Company

All underwriting and processing services to customers are now provided by FCIA Management Co., Inc., (www.fcia.com) which is a majority-owned subsidiary of Great American Insurance Co., Inc. of Cincinnati, Ohio. FCIA makes its products available exclusively through brokers and independent agents
International Associates in Downy, California Export Insurance Services, Inc. in Augusta, Georgia
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American International Group

Available to large exporters with sophisticated credit management system Policy limits up to $50 million Buyer limits up to $20 million Aggregate deductible $50,000 at a minimum Coverage up to 100% Single up-front premium payment of $30,000 Covers insolvency, protracted default, and political risks
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Euler American Credit Indemnity (ACI)

Founded in 1893 Insurance on both export and domestic accounts receivables, covering credit sales to 160 countries worldwide

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CNA Export Credit

Trade credit insurance by CNA Insurance Companies Covers insolvency and protracted default

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Lloyds of London
British Insurance Exchange housing various syndicates Underwrite Commercial and Political Risks Insurance

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Chubb Corporation
Corporation was formed in 1968 Covers Political Risks
Confiscation, Expropriation, Nationalization Wrongful calling of Guarantee Contract Frustration

Trade Credit Insurance

Multi-Debtor Policy Key-Debtor Policy
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