Export Credit Insurancefor

Managing risk, Improve Financing Facilitating Trade

Kathy EdwardsGlobal Business Solutions Corp.

What is Credit Insurance?Insurance against non-payment of accounts receivable

Protection of a major asset on your balance sheet

Collateral

Sleep Insurance

What it is NotA means to make a bad credit good

Primary source of repayment

Advantages of Credit InsuranceProtection Against Bad Debt Loss

Increased Sales

Better Borrowing Position with Insured

Receivables

Credit Information Resource

Collection Services

Factoring

Types of CoverageCommercial Risks

Buyer goes bankruptDeathDefault of payment for any reason other than product dispute

Political Risk Transfer riskGovernment preventing release of funds war/revolutioncurrency inconvertibilityloss of import/export license (Contract Frustration)

Catagories of Insurers

Public Underwriters

Private Underwriters

Public UnderwritersExport-Import Bank of the United States

Defined programs and costsSubject to US Government policiesSmall business policiesShort term, medium term, long termSingle buyer or multi-buyerPay as you go to improve cash flow

Export Credit Agencies (ECA’s)OECD guidelines

Insurance builds customer loyalty

Documentary CollectionsCover risk with credit insurance

Underwriting Philosophies

ExporterLength of time in business

Financial information

Credit approval experience

Losses

Underwriting BuyersTrade ReferencesCredit reports

• D&B International• Coface• Graydon

Financial information

Private Insurance Market Export & Domestic Coverage

AIGCoface (f/k/a CNA)Euler Hermes ACI (f/k/a Euler ACI)Altradius Trade Credit Insurance (f/k/a Gerling NCM Credit Insurance)FCIA

Private Underwriters

Less stringent underwriting of exporterGreater exporter responsibility for credit evaluation of buyerDeficient exporter credit files may result in refusal of claim paymentMinimum premium payable up frontLower rates but greater possibility of purchasing unnecessary coverage

 

$27,000$29,400$30,000$33,000Estimated Premium on sales of $6 Mil

.45%.49%.50%.55%Premium Rate

$100,000$0$150,000$20,000Discretionary Credit Limit -DCL

$40,000$0$50,000$0Annual Deductible

95%90%90%90%Indemnity

$1.5 mil$3 mil$2 mil$1 milPolicy Limit 

Quotes from Private Insurers

Policy AssignmentBenefits of policy can be assigned to a bank or lending institutionImmediate availability of funds Pass cost of funds to importerClaims will be paid directly to the lender

Credit Insurance as a Sales Aid

Open account sales

Better credit terms

Develop new markets

Less “Creative” sales terms from

sales staff

Replace Letters of CreditLetters of Credit

L/C’s do NOT guarantee paymentL/C’s require expertiseL/C may cost the sale if a competitor offers open account termsL/C’s tie up buyers’ funds or credit facilitiesInsurance eliminates high local interest costsInsurance eliminate bank fees, amendment fees, and discrepancy fees

Final Word

Every asset on a balance sheet is insured

except accounts receivable which, in some cases, account for 50% of the assets of the business

Would that keep you awake at night?

Dollars and Sense

Sale to Mexico

Sale EXW $100,000SHIPPING $5000.00

DAF(LARADO) $105,000

TERMS:SHIP 60 DAYS FROM REC OF IRR COMF LETTER OF CREDIT.

BUYER’S VIEWLOC $105,000

BANK FEE 5% $5,250SUBTOTAL $110,250

COST OF $$ * $3,325LANDED COST $113,575

*I=prt. $105x19%/12x2=

60 DAY OPEN ACCT WITH INSURANCE

EXWORKS $100,000SHIPPING $5,000DAF $105,000CREDIT

INSURANCE* $1,000FINANCE % $1,000LANDED COST $107,000

*premium at 1% for 60 days

LOC PRICE $113,575

60 DAY OPEN ACCOUNT $107,000

DIFFERENCEIN DELIVEREDPRICE $6,575

IS YOU “STUFF” WORTH

$6575 MORE THAN YOUR COMPETATORS