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1 CHAPTER XXXII EXPORT CREDIT INSURANCE Functions of Export Credit Insurance Risks Covered Risks Not Covered Export Credit Insurance Programs.

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Presentation on theme: "1 CHAPTER XXXII EXPORT CREDIT INSURANCE Functions of Export Credit Insurance Risks Covered Risks Not Covered Export Credit Insurance Programs."— Presentation transcript:

1 1 CHAPTER XXXII EXPORT CREDIT INSURANCE Functions of Export Credit Insurance Risks Covered Risks Not Covered Export Credit Insurance Programs

2 2 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

3 3 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

4 4 Risks Covered 1)Commercial Risks Inability or unwillingness of a foreign buyer to pay due to commercial reasons a.Economic deterioration in the buyer's market b.Fluctuations in demand c.Unanticipated competition d.Technological changes e.Buyers insolvency, bankruptcy, default f.Natural disasters: floods, fires and earthquakes

5 5 Risks Covered 2)Political Risks a.War b.Revolution and insurrection c.Boycotts d.Expropriation of buyer's business e.Revocation of import or export licenses after shipping f.Foreign exchange control: Currency inconvertibility g.Shifts in tariffs

6 6 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

7 7 Export Credit Insurance Programs Export-Import Bank of the United States (Ex- Im Bank) Export-Import Bank of the United States (Ex- Im Bank) FCIA Management Company, Inc. (FCIA) FCIA Management Company, Inc. (FCIA) Euler Hermes American Credit Indemnity (AIC) Euler Hermes American Credit Indemnity (AIC) Coface North America Coface North America Lloyds London Lloyds London

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

9 9 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

10 10 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

11 11 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

12 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

13 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 amounts over $100,000 13

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

15 15 Short-Term Multi-Buyer Export Credit Insurance Policy Characteristics: Policy proceeds assignable to lenders with prior approval of Ex-Im Bank 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

16 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.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

17 17 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

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: $2,500 18

19 19 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

20 20 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

21 21 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

22 22 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

23 Medium-Term Single-Buyer Export Credit Insurance Policy Repayment Terms –Less than $80,000 2 years –$80,000 to less than $175,0003 years –$175,000 to less than $350,0004 years –$350,000 or more5 years 23

24 Medium-Term Single-Buyer Export Credit Insurance Policy Premium Payments –Premium amount is determined by using a risk- based 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

25 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

26 26 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

27 27 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

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

29 29 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

30 30 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 premium payment

31 31 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

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

33 33 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.

34 Small Business Express Export Credit Insurance Policy Policy Description: –Insurance premiums are payable only upon an exporters shipment to a buyer pre- approved 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

35 35 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.

36 36 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.

37 37 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.

38 38 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.

39 39 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.

40 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

41 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

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 non- sovereign lessees. Usually is for up to five months –Coverage Against Governmental Prevention of Repossession Political risks of prevention of repossession 100% 42

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. –15% advance payment from the lessee to the lessor Ex-Im Bank insures remaining 85 percent of the lease transaction. –Coverage is 100%. 43

44 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

45 Lease Export Credit Insurance Policy Claims Operating Lease Policy –Claims may be filed at the date of repossession of the asset or the end of the repossession-efforts period but 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

46 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.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.

47 47 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

48 48 Euler Hermes American Credit Indemnity (ACI) Euler Hermes is the worlds leading credit insurer with a 34% share of the market. It operates in more than 50 countries and assists companies of all sizes and in every industry sector to develop their business securely

49 49 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

50 50 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


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