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EXPORT CREDIT INSURANCE

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




                                    1
     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.   Economic deterioration in the buyer's market
  b.   Fluctuations in demand
  c.   Unanticipated competition
  d.   Technological changes
  e.   Buyer’s insolvency, bankruptcy, and default
  f.   Natural disasters: floods, fires, and earthquakes



                                                           4
             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

                                               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 (Ex-
  Im Bank)
 FCIA Management Company, Inc. (FCIA)
 Euler Hermes American Credit Indemnity
  (AIC)
 Coface North America
 Lloyd’s London



                                                 7
   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 consumer
  durables
 Products of minimum 51% U.S. content
  excluding markup and non-military goods


                                                 9
 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
  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
   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 exporter’s 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                2 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




                                                 23
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
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 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
   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 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.


                                                 34
  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.
  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 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, 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 non-
       sovereign 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% 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
   – At the date of repossession of the asset 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 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
        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
              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.
• Credit insurance and political risks insurance to
  the international business community

                                                  50

				
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