1 CHAPTER XXXII EXPORT CREDIT INSURANCE Functions of Export Credit Insurance Risks Covered Risks Not...
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Transcript of 1 CHAPTER XXXII EXPORT CREDIT INSURANCE Functions of Export Credit Insurance Risks Covered Risks Not...
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CHAPTER XXXII CHAPTER XXXII EXPORT CREDIT INSURANCEEXPORT CREDIT INSURANCE
Functions of Export Credit Insurance
Risks Covered Risks Not Covered Export Credit Insurance
Programs
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Export Credit InsuranceExport 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
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Functions of Export Credit Functions of Export Credit InsuranceInsurance
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
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Risks CoveredRisks Covered
1) Commercial Risks Inability or unwillingness of a foreign buyer
to pay due to commercial reasonsa. Economic deterioration in the buyer's market
b. Fluctuations in demand
c. Unanticipated competition
d. Technological changes
e. Buyer’s insolvency, bankruptcy, default
f. Natural disasters: floods, fires and earthquakes
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Risks CoveredRisks Covered
2) Political Risksa. Warb. Revolution and insurrectionc. Boycottsd. Expropriation of buyer's businesse. Revocation of import or export licenses
after shippingf. Foreign exchange control: Currency
inconvertibilityg. Shifts in tariffs
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Risks Not CoveredRisks 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
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Export Credit Insurance Export Credit Insurance ProgramsPrograms
Export-Import Bank of the United States (Ex-Export-Import Bank of the United States (Ex-Im Bank)Im Bank)
FCIA Management Company, Inc. (FCIA) FCIA Management Company, Inc. (FCIA) Euler Hermes American Credit Indemnity Euler Hermes American Credit Indemnity
(AIC) (AIC) Coface North America Coface North America Lloyd’s LondonLloyd’s London
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Export-Import Bank of the United Export-Import Bank of the United States (Ex-Im Bank) States (Ex-Im Bank)
Short-Term Multi-Buyer Export Credit Short-Term Multi-Buyer Export Credit Insurance PolicyInsurance Policy
Short-Term Single-Buyer Export Short-Term Single-Buyer Export Credit Insurance PolicyCredit Insurance Policy
Medium-Term Single-Buyer Export Medium-Term Single-Buyer Export Credit Insurance PolicyCredit Insurance Policy
Small Business Multi-Buyer Export Small Business Multi-Buyer Export Credit Insurance PolicyCredit Insurance Policy
Small Business Express Export Credit Small Business Express Export Credit Insurance PolicyInsurance Policy
Lease Export Credit Insurance PolicyLease Export Credit Insurance Policy
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Short-Term Multi-Buyer Export Short-Term Multi-Buyer Export Credit Insurance PolicyCredit 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
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Short-Term Multi-Buyer Export Short-Term Multi-Buyer Export Credit Insurance PolicyCredit Insurance Policy
Coverage 95% of the invoice amount for both
commercial risks and political risks
98% for Bulk agricultural commodities
100% for sovereign obligors
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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
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
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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
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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
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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 premiums• Preshipment Coverage
• Non-acceptance Coverage
• Consignment Stock Coverage
• Sales from Overseas Warehouse Coverage
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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 equipment
Submit application on buyer with credit report & trade references
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Short-Term Single-Buyer Short-Term Single-Buyer Export Credit Insurance PolicyExport 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
Short-Term Single-Buyer Short-Term Single-Buyer Export Credit Insurance PolicyExport 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
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Short-Term Single-Buyer Short-Term Single-Buyer Export Credit Insurance PolicyExport 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 date
Ex-Im Bank will pay within 60 days of receiving complete claim documents
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Short-Term Single-Buyer Short-Term Single-Buyer Export Credit Insurance PolicyExport 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
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Medium-Term Single-Buyer Medium-Term Single-Buyer Export Credit Insurance PolicyExport 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
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Medium-Term Single-Buyer Medium-Term Single-Buyer Export Credit Insurance PolicyExport 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
Medium-Term Single-Buyer Medium-Term Single-Buyer Export Credit Insurance PolicyExport 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
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Medium-Term Single-Buyer Medium-Term Single-Buyer Export Credit Insurance PolicyExport 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
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Medium-Term Single-Buyer Medium-Term Single-Buyer Export Credit Insurance PolicyExport 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
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Small Business Multi-Buyer Small Business Multi-Buyer Export Credit Insurance PolicyExport 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
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Small Business Multi-Buyer Small Business Multi-Buyer Export Credit Insurance PolicyExport 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
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Small Business Multi-Buyer Small Business Multi-Buyer Export Credit Insurance PolicyExport Credit Insurance Policy
Coverage: 95% for commercial risks 95% for political risks No first-loss deductible
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Small Business Multi-Buyer Small Business Multi-Buyer Export Credit Insurance PolicyExport 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
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Small Business Multi-Buyer Small Business Multi-Buyer Export Credit Insurance PolicyExport 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
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Small Business Multi-Buyer Small Business Multi-Buyer Export Credit Insurance PolicyExport 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
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Small Business Multi-Buyer Small Business Multi-Buyer Export Credit Insurance PolicyExport Credit Insurance Policy
Policy Assignment: Can assign policy proceeds to lenders
with approval of Ex-Im Bank
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Small Business Express Export Small Business Express Export Credit Insurance PolicyCredit 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.
Small Business Express Export Small Business Express Export Credit Insurance PolicyCredit 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.
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Small Business Express Export Small Business Express Export Credit Insurance PolicyCredit Insurance Policy
Applicant’s QualificationsA small business An 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 terms A DUNS # with Dun & Bradstreet.
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Small Business Express Export Small Business Express Export Credit Insurance PolicyCredit 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.
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Small Business Express Export Small Business Express Export Credit Insurance PolicyCredit Insurance Policy
Coverage95% 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.
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Small Business Express Export Small Business Express Export Credit Insurance PolicyCredit 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.
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Small Business Express Export Small Business Express Export Credit Insurance PolicyCredit 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.
Lease Export Credit Insurance Lease Export Credit Insurance PolicyPolicy
• 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
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Lease Export Credit Insurance Lease Export Credit Insurance PolicyPolicy
• 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.
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Lease Export Credit Insurance Lease Export Credit Insurance PolicyPolicy
• 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%
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Lease Export Credit Insurance Lease Export Credit Insurance PolicyPolicy
• 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%.
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Lease Export Credit Insurance Lease Export Credit Insurance PolicyPolicy
• 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.
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Lease Export Credit Insurance Lease Export Credit Insurance PolicyPolicy
• 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.
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FCIA Management CompanyFCIA 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.
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FCIA Management CompanyFCIA Management CompanyFCIA 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
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Euler Hermes American Credit Euler Hermes American Credit Indemnity (ACI)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
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Coface North AmericaCoface 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
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Lloyd’s of LondonLloyd’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