export credit insurance.ppt

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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. Key executives becoming inactive

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) American International Group (AIG)American International Group (AIG)Euler American Credit Indemnity (AIC) Euler American Credit Indemnity (AIC) CNA Export Credit CNA Export Credit Lloyd’s LondonLloyd’s LondonChubb CorporationChubb Corporation

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Export-Import Bank of the Export-Import Bank of the United States (Ex-Im Bank)United 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

Leasing Export Credit Insurance Leasing Export Credit Insurance PolicyPolicy

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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 agricultural commodities, fertilizer and consumer durables by special endorsement

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

Exporter must pay refundable minimum advance premium of $500 annually

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Short-Term Multi-Buyer Export Short-Term Multi-Buyer Export Credit Insurance PolicyCredit Insurance Policy

Coverage Options: Split coverage:• 100% for political loss and 90% for commercial

loss, 98% for agricultural sales • Exporter absorbs a first loss deductible in

addition to retaining10% of commercial risks Equalized coverage: • 95% for political and commercial loss. 98% for

agricultural sales• Exporter absorbs a first loss deductible in

addition to retaining 5% of both the political and commercial risk.

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Short-Term Multi-Buyer Export Credit Insurance Policy

Credit Limits:I. Discretionary Credit Limit (DCL)

Highest amount of insured credit outstanding to one foreign buyer without prior approval from Ex-Im Bank1) Credit information DCL: Two credit reports &

Conditions of Country Limitation Schedule2) Ledger Experience DCL: Past business

experience & Conditions of Country Limitation Schedule

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Short-Term Multi-Buyer Export Short-Term Multi-Buyer Export Credit Insurance PolicyCredit Insurance Policy

Credit Limits:

II. Special Buyer Credit Limit (SBCL)

Credit limit outstanding to any one foreign buyer at any one time

Must apply for SBCL if DCL too low

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Short-Term Multi-Buyer Export Credit Insurance Policy

Reporting Requirements:

Report of Premiums Payable listing all eligible shipments with premium check monthly

Overdue Report Form: 90 days overdue on $100,000 or more

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Short-Term Multi-Buyer Export Credit Insurance Policy

Claims:

To be filed between 90 days after due date and 240 days with Notice of Claim and Proof of Loss

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 with prior

approvalDeductible may be fixed for policy year &

vary with volumeSpecial 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 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% Letter of Credit transactions 95% Bulk agriculture 98%

No first loss deductible

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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 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

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Medium-Term Single-Buyer Medium-Term Single-Buyer Export Credit Insurance PolicyExport Credit Insurance PolicyPremium:

No published rates. Can obtain non-binding rate

Claims: Monthly report on default accounts within

60 days of default To be filed no later than 240 days from the

date of default A 180-day waiting period on commercial

default If foreign buyer bankrupt or insolvent, or

political default, can file immediately

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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 agricultural commodities,

fertilizer, consumer durables by special endorsement

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Small Business Multi-Buyer Small Business Multi-Buyer Export Credit Insurance PolicyExport Credit Insurance Policy

Coverage: 95% for commercial risks 100% for political risks No first-loss deductible

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Small Business Multi-Buyer Small Business Multi-Buyer Export Credit Insurance Export Credit Insurance

PolicyPolicyEligible Exporters:

Must be a small business determined by U.S. SBA under North American Industry Classification System (NAICS)

Annual export credit sales volume averaging $5 million or less for past two fiscal 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 premium Submit a monthly Report of Premiums

Payable 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 Need EX-Im Bank’s pre-approval for

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

Overdue Invoices and Filing Claims: Monthly report on past due accounts over

90 days and over $100,000 Claims to be filed between 90 and 240 days Exim Bank pays valid claims within 60

days of receiving complete documentation

Policy Assignment: Can assign policy proceeds to lenders

with approval of Ex-Im Bank

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Leasing Export Credit Leasing Export Credit Insurance PolicyInsurance Policy

Policy Description: Two types of credit insurance policy for U.S.

leasing industry

•Operating Lease Policy

• Financing Lease Policy

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Leasing Export Credit Leasing Export Credit Insurance PolicyInsurance Policy

Eligible Lessors: Leasing company, manufacturer, bank, or

other entity, foreign or domestic Leases or participates in the financing of

leases of U.S.-manufactured equipment and services outside the U.S.

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Leasing Export Credit Insurance Policy

Operating Lease Policy Divided into two part which may be

purchased together or separatelyI. Coverage for Streams of Payments

Provides coverage for the stream of payments falling due during a repossession-efforts period after default of the lease.

The length is usually for up to five (5) months after default

100% for sovereign leases and 90% for non-sovereign leases

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Leasing Export Credit Leasing Export Credit Insurance PolicyInsurance Policy

Operating Lease Policy

II. Coverage Against Governmental Prevention of Repossession (GPR) Insures the political risk of prevention of

repossession of the leased products due to specific actions, i.e., expropriation, confiscation, and cancellation of export license.

100% for all lease types

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Leasing Export Credit Leasing Export Credit Insurance PolicyInsurance Policy

Financing Lease Policy Covers a lease in which there is little

residual value and ownership is transferred to the lessee at the end of the lease

15% advance payment by the lessee to the lessor

100% coverage Assignment of proceeds to a financial

institution with a prior approval of the Ex-Im Bank

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Leasing Export Credit Leasing Export Credit Insurance PolicyInsurance Policy

Policy Issuance: Both policies cover single transactions.

 Claims:

Operating Lease Policy: Not earlier than the end of repossession-efforts period and not later than 120 days after this period.

Financing Lease Policy: Between 90 and 240 days after default

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Leasing Export Credit Leasing Export Credit Insurance PolicyInsurance Policy

Assignment of Proceeds: May be assigned to financial institution,

subject to Ex-Im Bank approval

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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 1992, the Association became solely a

private entity as FCIA Management, Inc.

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FCIA Management CompanyFCIA Management CompanyAll underwriting and processing services to

customers are now provided by FCIA Management Co., Inc., (www.fcia.com) which is a majority-owned subsidiary of Great American Insurance Co., Inc. of Cincinnati, Ohio.

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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American International GroupAmerican International Group

Available to large exporters with sophisticated credit management system

Policy limits up to $50 millionBuyer limits up to $20 millionAggregate deductible $50,000 at a minimumCoverage up to 100%Single up-front premium payment of $30,000Covers insolvency, protracted default, and

political risks

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Euler American Credit Euler American Credit Indemnity (ACI)Indemnity (ACI)

Founded in 1893 Insurance on both export and

domestic accounts receivables, covering credit sales to 160 countries worldwide

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CNA Export CreditCNA Export Credit

Trade credit insurance by CNA Insurance Companies

Covers insolvency and protracted default

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Lloyd’s of LondonLloyd’s of LondonBritish Insurance Exchange housing various

syndicatesUnderwrite Commercial and Political Risks

Insurance

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Chubb CorporationChubb Corporation

Corporation was formed in 1968Covers

Political Risks• Confiscation, Expropriation, Nationalization• Wrongful calling of Guarantee• Contract Frustration

Trade Credit Insurance• Multi-Debtor Policy• Key-Debtor Policy