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
2

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
3

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 Buyers insolvency, bankruptcy, default 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
5

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, Inc. (FCIA) Euler Hermes American Credit Indemnity (AIC) Coface North America Lloyds London

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, 360 days for qualifying transactions: agricultural commodities, fertilizer and durables Products of minimum 51% U.S. content excluding markup and non-military goods

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 exporters 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

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, spread of country risk, transaction type, and previous export experience of the exporter. Premiums are paid monthly with shipment report Exporter must pay a one-time, refundable advance premium of $500 to get a policy. No annual minimum premium

12

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, D/A, D/P, Open A/C, except Irrevocable confirmed L/C and advance payment, military goods Overdue report: Past due over 90 days on over $100,000

13

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

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 qualifying transactions: agricultural commodities, fertilizer, consumer durables, capital equipment Submit application on buyer with credit report & trade references
16

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

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: $2,500
18

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

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

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 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
22

Medium-Term Single-Buyer Export Credit Insurance Policy

Repayment Terms
Less than $80,000 $80,000 to less than $175,000 $175,000 to less than $350,000 $350,000 or more 2 years 3 years 4 years 5 years

23

Medium-Term Single-Buyer Export Credit Insurance Policy

Premium Payments
Premium amount is determined by using a riskbased pricing system. No published rates Under a single shipment policy, premium must be paid before a policy is issued Under a repetitive policy, by last business day of the month following each shipment

24

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

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 qualifying transactions: agricultural commodities, fertilizer, consumer durables
27

Small Business Multi-Buyer Export Credit Insurance Policy

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

28

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 $7.5 million or less for past 3 years Positive net worth and at least one year successful operating history
29

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 exporters 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

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 $300,000 on foreign buyers within five workdays. Credit reports on all buyers the exporter elects to insure are made by the Ex-Im Bank free of charge.

33

Small Business Express Export Credit Insurance Policy

Policy Description:
Insurance premiums are payable only upon an exporters shipment to a buyer preapproved by the Ex-Im Bank. No application fees. A one-time, refundable $500 advance deposit is required at a quotation acceptance to issue the policy.

34

Small Business Express Export Credit Insurance Policy

Applicants 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. Ten or less existing foreign buyers sold to on credit terms A DUNS # with Dun & Bradstreet.
35

Small Business Express Export Credit Insurance Policy

Eligible Transactions
Exported products manufactured in and shipped from the United States More than 50 percent U.S. content.

Maximum credit terms are generally 180 days, but up to 360 days for capital goods, bulk, unprocessed agricultural commodities or other qualifying transactions.

36

Small Business Express Export Credit Insurance Policy

Coverage
95% Commercial losses
Insolvency, bankruptcy, and default

95% Political losses

War, revolution, cancellation of import or export licenses, currency inconvertibility

There is no first-loss deductible.

37

Small Business Express Export Credit Insurance Policy

Premium Rates and Monthly Shipment Report
The premium rates for private sector buyers are $0.65 per $100 of gross invoice value for 1-60 days, $1.06 for 61-120 days, $1.35 for 121-180 days of payment terms. Shipments must be reported and premiums have to be paid by the last day of the month following month of shipment.
38

Small Business Express Export Credit Insurance Policy

Overdue Invoices and Filing Claims Online overdue reports on past due over 90 days for more than $25,000. 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.

39

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, 30-yr useful life), Aircraft, Automobile

Finance lease: One of the conditions

Ownership transferred to the lessee at the end of lease Lease term 75% or more of assets 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, manufacturer, bank, or other entity, foreign or domestic, that leases or finances leases of U.S.-manufactured equipment and services outside the United States.

41

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. 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

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. 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

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

44

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. Finance Lease Policy Claims may be filed from 120 to 240 days after default. Ex-Im Bank pays properly submitted and documented lease policy claims within 60 days of receipt of a claim.

45

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 1991, the Association became solely a private entity as FCIA Management, Inc.
46

FCIA Management Company

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

Euler Hermes American Credit Indemnity (ACI)

Euler Hermes is the worlds 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

Coface North America

Coface North America is a unit of the Coface Grouop, a world leader in trade-risk management. In 2003, Coface acquired the CNA Credit unit to enter the credit insurance market in the United States and Canada.

It provides accounts receivable insurance and political risk insurance

49

Lloyds 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. Credit insurance and political risks insurance to the international business community
50