CHAPTER XXXII EXPORT CREDIT INSURANCE

1. CHAPTER XXXII EXPORT CREDIT INSURANCE • Functions of Export Credit Insurance • Risks Covered • Risks Not Covered • Export Credit Insurance Programs

2. 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

3. Functions of Export Credit Insurance • Reduces export risk of not being paid • Enhances an exporter's ability to obtain favorable export financing • Enables an exporter to offer competitive credit terms to an importer • Enables an exporter to penetrate high-risk foreign markets • Provides greater liquidity and flexibility of foreign accounts receivable

4. Risks Covered • Commercial Risks • Inability or unwillingness of a foreign buyer to pay due to commercial reasons • 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

5. Risks Covered 2) Political Risks • War • Revolution and insurrection • Boycotts • Expropriation of buyer's business • Revocation of import or export licenses after shipping • Foreign exchange control: Currency inconvertibility • Shifts in tariffs

6. Risks Not Covered • Shipments not complying with requirements of coverage • Shipments not reported to the insurer • Shipments which buyer refuses to accept • Disputed shipments until they become a legal obligation of the buyer • Losses due to the fault of exporter, agent or administrator • Claims not filed timely with the insurer

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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

28. Small Business Multi-Buyer Export Credit Insurance Policy • Coverage: • 95% for commercial risks • 95% for political risks • No first-loss deductible

29. 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

30. 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

31. 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

32. Small Business Multi-Buyer Export Credit Insurance Policy • Policy Assignment: • Can assign policy proceeds to lenders with approval of Ex-Im Bank

33. 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.

34. 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.

35. 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.

36. 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.

37. 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.

38. 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.

39. 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.

40. 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

41. 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.

42. 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%

43. 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%.

44. 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.

45. 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.

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 brokers and independent agents • International 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 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

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