Export Credit Insurance

Question 1

Export credit insurance

Answer 1

Protects a seller against the risk of non-payment by foreign buyer

Short term cover-credit terms up to 180 days

Long term cover-for risks that extend for more than 180days

Risks typically covered in ECI policies are political or country risk and credit risk of buyer default

Question 2

Export credit agency

Answer 2

Public agencies and entities that provide government-backed loans, guarantees and insurance to corporations from their home country that seek to do business overseas in developing countries and emerging markets

Question 3

Whole turnover policies

Answer 3

Whole turnover insurance covers all sales on credit terms and is the traditional form of credit insurance

Policies are usually provided for between 80-95percent meaning the seller is left with between 5-20percent of the risk

Question 4

Specific or key customer policies

Answer 4

Write a policy specifically covering the default risk of one customer or of a small number of customers where the seller has the largest part of its turnover

Question 5

Excess or catastrophe policies

Answer 5

Once a certain pre agreed level of loss has been sustained the remaining losses in the policy period will be insured
The seller will cover 100percent of losses until a threshold is reached. Premiums will be lower

Question 6

Insurance payout grace period

Answer 6

Usually of 180 or 360days

Question 7

Political or country risk

Answer 7

Confiscation or expropriation of machinery, goods or whole factories

Violence by civil unrest, coup detat local war

Inability to convert local currency to hard currency

Embargo on imports or arbitrary cancellation of an import license AFTER seller involved in contractual costs

Intervention by governments imposition of impossible rules

Unfair calling of a performance or guarantee

Question 8

Insurance covered by government backed export support agencies

Answer 8

Buyer insolvency

Buyers failure to pay within 6 months of the due date

Default by the buyer or guarantor in meeting a final judgement or award within 6months of due date

Default in payment or performance of the contract by the buyer, which prevents the supplier from carrying out its part of the contract

Political or economic moves that prevent the transfer of contractual payments

Prevention by foreign government of performing of the contract

Any natural disasters, wars civil strife

Non renewal or cancellation of a suppliers export license

Measure introduced after the contract date that hampers the performance of the contract

Question 9

ECA Financing

Answer 9

Supplier credit
A form of post-shipment finance that applies when the sellers bank lends the money direct to the seller
Finance possibly up to 85percent of the contract value

Buyer credit
Where the sellers bank makes money available to the buyer to pay the seller, usually without recourse
Usually minimum USD 7.5million
Seller is paid as if 100% cash contract had been agreed, a percentage from the buyer typically 15% and 85% from the buyer credit facility
Buyer has time to pay the 85% borrowing at fixed or floating rates of interest

Question 10

Lines of credit

Answer 10

Facilities provided by financial institutions that enable the seller to finance its foreign buyers
Can be low as USD 40000

Useful for major projects in which a number of suppliers in the same country are nominated by the overseas buyer to provide goods and services. The entity will guarantee a loan from the sellers bank to the overseas buyer or procurement agent. The buyer can split up the loan using it to pay various suppliers in the sellers country, contracts as low as USD 40000
Credit periods of one to five years