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.
b.
c.
d.
e.
f.
Economic deterioration in the buyer's market
Fluctuations in demand
Unanticipated competition
Technological changes
Buyer’s insolvency, bankruptcy, default
Natural disasters: floods, fires and earthquakes
4
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
 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 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 amounts
over $100,000
13
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
14
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
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 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
$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
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 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
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 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
– 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
Insurance Brokers of Ex-Im Bank
• Brokers provide a number of valuable
services to exporters who need export
credit insurance with Ex-Im Bank.
• They receive their compensation from
commissions paid by Ex-Im Bank -- there
is no charge to the policyholder.
• List of Insurance Brokers
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
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 independent brokers
 International Insurance Associates in Downy,
California
 Export 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 America
 Coface North America is a unit of the Coface
Group, 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 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
51