Presentation on theme: "CHAPTER XXXII EXPORT CREDIT INSURANCE"— Presentation transcript:
1 CHAPTER XXXII EXPORT CREDIT INSURANCE Functions of Export Credit InsuranceRisks CoveredRisks Not CoveredExport Credit Insurance Programs
2 Export Credit Insurance Purpose:To protect exporters against the risk of nonpayment by foreign debtors due to commercial or political reasonsWhen:When exports being conducted without an irrevocable, confirmed Letter of CreditExports on Open Account or D/A or D/P
3 Functions of Export Credit Insurance Reduces export risk of not being paidEnhances an exporter's ability to obtain favorable export financingEnables an exporter to offer competitive credit terms to an importerEnables an exporter to penetrate high-risk foreign marketsProvides greater liquidity and flexibility of foreign accounts receivable
4 Risks Covered Commercial Risks Inability or unwillingness of a foreign buyer to pay due to commercial reasonsEconomic deterioration in the buyer's marketFluctuations in demandUnanticipated competitionTechnological changesBuyer’s insolvency, bankruptcy, defaultNatural disasters: floods, fires and earthquakes
5 Risks Covered 2) Political Risks War Revolution and insurrection BoycottsExpropriation of buyer's businessRevocation of import or export licenses after shippingForeign exchange control: Currency inconvertibilityShifts in tariffs
6 Risks Not CoveredShipments not complying with requirements of coverageShipments not reported to the insurerShipments which buyer refuses to acceptDisputed shipments until they become a legal obligation of the buyerLosses due to the fault of exporter, agent or administratorClaims not filed timely with the insurer
7 Export Credit Insurance Programs Export-Import Bank of the United States (Ex-Im Bank)FCIA Management Company, Inc. (FCIA)Euler Hermes American Credit Indemnity (AIC)Coface North AmericaLloyd’s London
8 Export-Import Bank of the United States (Ex-Im Bank) Short-Term Multi-Buyer Export Credit Insurance PolicyShort-Term Single-Buyer Export Credit Insurance PolicyMedium-Term Single-Buyer Export Credit Insurance PolicySmall Business Multi-Buyer Export Credit Insurance PolicySmall Business Express Export Credit Insurance PolicyLease Export Credit Insurance Policy
9 Short-Term Multi-Buyer Export Credit Insurance Policy Policy DescriptionOne-year blanket policy insuring short-term export credit sales to many different buyersRepayment terms up to 180 days, 360 days for qualifying transactions: agricultural commodities, fertilizer and durablesProducts of minimum 51% U.S. content excluding markup and non-military goods
10 Short-Term Multi-Buyer Export Credit Insurance Policy Coverage95% of the invoice amount for both commercial risks and political risks98% for Bulk agricultural commodities100% for sovereign obligors
11 Short-Term Multi-Buyer Export Credit Insurance Policy Credit LimitsCredit limits are granted by Ex-Im Bank in accordance with exporter’s experienceCredit limits allow exporter to extend insured credit without prior approval from Ex-Im BankEx-Im Bank must pre-approve amount over the credit limit in the policy and in certain countries per Country Limitation ScheduleExporter must obtain credit information on the buyer to show its creditworthiness
12 Short-Term Multi-Buyer Export Credit Insurance Policy Premium Rates and PaymentsPremium 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 reportExporter must pay a one-time, refundable advance premium of $500 to get a policy. No annual minimum premium
13 Short-Term Multi-Buyer Export Credit Insurance Policy Reporting RequirementsShipment report: By the end of next month with a premium checkInclude all shipments under Irrevocable unconfirmed L/C, D/A, D/P, Open A/C, except Irrevocable confirmed L/C and advance payment, military goodsOverdue report: Past due over 90 days on amounts over $100,000
14 Short-Term Multi-Buyer Export Credit Insurance Policy Filing Claims:To be filed between 90 days and 240 days from due dateEx-Im Bank will pay valid claim in 60 days of receiving complete claim documents
15 Short-Term Multi-Buyer Export Credit Insurance Policy Characteristics:Policy proceeds assignable to lenders with prior approval of Ex-Im BankDeductible may be fixed for policy year & vary with volumePolitical risk only policy availableSpecial coverage with special endorsement and additional premiumsPreshipment CoverageNon-acceptance CoverageConsignment Stock CoverageSales from Overseas Warehouse Coverage
16 Short-Term Single-Buyer Export Credit Insurance Policy Policy Description:Single or multiple shipments to a single foreign buyerGoods of minimum 51% U.S. content and non-military goodsRepayment terms: Up to 180 days & 360 days for qualifying transactions: agricultural commodities, fertilizer, consumer durables, capital equipmentSubmit application on buyer with credit report & trade references
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 PremiumsSovereign Buyers or Political risk only:Small Business Exporter: $500Other $750Financial Institutes:Other $1,500Non-Financial Institutes:Other: $2,500
19 Short-Term Single-Buyer Export Credit Insurance Policy Claims and PaymentsMust file a Notice of Claim and Proof of Loss Form between 90 days and 240 days from the due dateEx-Im Bank will pay within 60 days of receiving complete claim documents
20 Short-Term Single-Buyer Export Credit Insurance Policy CharacteristicsExporter is not required to insure all credit buyersPolicy proceeds may be assigned with prior approvalNo first lost deductibleSpecial coverage with special endorsement & additional premiumsPreshipment CoverageNon-acceptance CoverageConsignment Stock CoverageSales from Overseas Warehouse Coverage
21 Medium-Term Single-Buyer Export Credit Insurance Policy Policy Description:U.S. capital goods and related servicesOne to five years. Occasionally longer payment terms up to 7 yearsNo-military goodsWritten on a case-by-case basis
22 Medium-Term Single-Buyer Export Credit Insurance Policy Coverage:15% cash down payment by a foreign buyer before delivery of the goodsLesser of 85% of exporter’s contract value or 100% of the U.S. content100% of financed portion against commercial and political risksCreditworthy foreign buyer in acceptable country per Country Limitation Schedule
23 Medium-Term Single-Buyer Export Credit Insurance Policy Repayment TermsLess than $80, years$80,000 to less than $175,000 3 years$175,000 to less than $350,000 4 years$350,000 or more 5 years
24 Medium-Term Single-Buyer Export Credit Insurance Policy Premium PaymentsPremium amount is determined by using a risk-based pricing system. No published ratesUnder a single shipment policy, premium must be paid before a policy is issuedUnder a repetitive policy, by last business day of the month following each shipment
25 Medium-Term Single-Buyer Export Credit Insurance Policy Filing ClaimsReport all buyers who fall into default within 30 days on a monthly basisWaiting periods and deadlines for filing claims vary with the type of loss incurred
26 Small Business Multi-Buyer Export Credit Insurance Policy Policy Purpose:Small businesses new to exporting or only occasionally exportingHelp small businesses increase international sales by extending competitive credit terms while minimizing credit risksAlso financing tool by offering insured foreign receivables as collaterals
27 Small Business Multi-Buyer Export Credit Insurance Policy Policy Description:All shipments on credit terms to all eligible countriesPolicy period: 1 year. Renewed annually51% U.S. content excluding markupRepayment terms: Up to 180 days for most goods360 days for qualifying transactions: agricultural commodities, fertilizer, consumer durables
28 Small Business Multi-Buyer Export Credit Insurance Policy Coverage:95% for commercial risks95% for political risksNo first-loss deductible
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 yearsPositive net worth and at least one year successful operating history
30 Small Business Multi-Buyer Export Credit Insurance Policy Premium Rates and Payments:Premiums paid according to a rate scheduleOne-time refundable advance premium $500, but no minimum annual premiumSubmit a monthly Report of shipment with premium payment
31 Small Business Multi-Buyer Export Credit Insurance Policy Credit Limits:Credit limits without prior approval from EX-Im Bank is stated in the policyGranted in accordance with exporter’s experienceExporter must obtain credit information on buyer to show its creditworthinessEX-Im Bank must pre-approve amounts over the credit limits in the policy
32 Small Business Multi-Buyer Export Credit Insurance Policy Policy Assignment:Can assign policy proceeds to lenders with approval of Ex-Im Bank
33 Small Business Express Export Credit Insurance Policy Policy Description:A “named buyer” policyA 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 exporter’s 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.
35 Small Business Express Export Credit Insurance Policy Applicant’s QualificationsA small businessAn average of less than $7.5 million in export credit sales over the last three yearsAt least one year business operating historyA positive net worth.Ten or less existing foreign buyers sold to on credit termsA DUNS # with Dun & Bradstreet.
36 Small Business Express Export Credit Insurance Policy Eligible TransactionsExported products manufactured in and shipped from the United StatesMore 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 Small Business Express Export Credit Insurance Policy Coverage95% Commercial lossesInsolvency, bankruptcy, and default95% Political lossesWar, revolution, cancellation of import or export licenses, currency inconvertibilityThere is no first-loss deductible.
38 Small Business Express Export Credit Insurance Policy Premium Rates and Monthly Shipment ReportThe premium rates for private sector buyers are$0.65 per $100 of gross invoice value for 1-60 days,$1.06 for days,$1.35 for 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 Small Business Express Export Credit Insurance Policy Overdue Invoices and Filing ClaimsOnline 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 dateInsurance claims are paid within 60 days of receipt of all required documents.
40 Lease Export Credit Insurance Policy Policy DescriptionOperating leaseLease whose term is short compared to the useful life of the leased asset with a high residual value at end of leaseShip (10-yr lease, 30-yr useful life), Aircraft, AutomobileFinance lease: One of the conditionsOwnership transferred to the lessee at the end of leaseLease term 75% or more of asset’s useful lifePresent value of lease payments 90% or more of original costOption to buy at much less than fair market value
41 Lease Export Credit Insurance Policy Eligible Lessorsany 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.
42 Lease Export Credit Insurance Policy Operating Lease Export Credit Insurance PolicyCoverage for Streams of Paymentsthe 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 monthsCoverage Against Governmental Prevention of RepossessionPolitical risks of prevention of repossession100%
43 Lease Export Credit Insurance Policy Finance Lease Export Credit Insurance PolicyLease 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%.
44 Lease Export Credit Insurance Policy Policy IssuanceBoth the Operating Lease and the Finance Lease policies cover single transactions.A separate policy is issued for each lease insured with Ex-Im Bank.
45 Lease Export Credit Insurance Policy ClaimsOperating Lease PolicyClaims 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 PolicyClaims 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.
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 netIn 1991, the Association became solely a private entity as FCIA Management, Inc.
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 agentsInternational Associates in Downy, CaliforniaExport Insurance Services, Inc. in Augusta, Georgia
48 Euler Hermes American Credit Indemnity (ACI) Euler Hermes is the world’s 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 Coface North AmericaCoface 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 Lloyd’s of LondonLloyd'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