Export Credit Insurance

Protecting yourself against foreign buyer default can help your company develop and expand its overseas sales. For this purpose, The International Division of the ECIDA brokers both private-sector insurance as well as insurance through the Ex-Im Bank. Our insurance customers also qualify for reduced rates on Coface Credit Reports which allow you to analyze your trade partner's operations, stability and profitability. Export credit insurance safeguards against foreign buyer default due to political and commercial risks undertaken doing foreign business.

Political Risk

Political losses can be caused by war, revolution, cancellation of an existing policyholder's export or buyer's import license, or currency inconvertibility, among other reasons. Each policy lists the specific risks covered. Among the risks excluded from coverage are disputes with the buyer.

Commercial Risk

Commercial losses are those that affect business anywhere, such as a buyer's insolvency or failure to pay an obligation within 90 days after the due date, including a failure to pay because of currency devaluation. Among the risks excluded from coverage are disputes with the buyer.

The reasons why exporters and banks buy export credit insurance are threefold:

  1. Competitiveness - There is a chance your competitor is offering open account terms to potential customers
  2. Risk Protection - Cash in advance is safer for you, but may not be feasible for your customer. Mitigate the threat of non-payment.
  3. Financing - Your lender can be named as an assignee on your policy, affording the bank protection on their assets and you an increase in your borrowing base.

Often buyers demand credit, or credit terms of sale are necessary to successfully compete, thus, Exporters and financial institutions desire protection against the political and commercial risks of default. With insurance on a foreign receivable, the proceeds of which can be assigned, it is easier for the exporter to sell or borrow against such receivable thus enhancing cash flow.

To accommodate exporter's varying needs, two types of short-term export policies are available through Ex-Im:

Single Buyer Policy

Exporters of U.S. goods and services can reduce their risks of selling abroad and expand their worldwide market by selectively insuring foreign receivables under a Short-Term Single-Buyer Policy.

In addition the exporter can, with prior approval from Ex-Im Bank, assign its rights to the amounts payable under the policy to a financial institution as collateral to obtain financing.

Coverage applies to credit sales to a single foreign buyer or export letters of credit opened by a single foreign issuing bank named in the policy declarations for goods produced and shipped or services exported from the United States during the policy period.

The policy insures U.S. exporters against export credit risks, both political and commercial. Exporters may cover single or multiple shipments under a sales contract or repetitive sales to a single foreign buyer.

The Short-Term Single-Buyer Policy insures short-term credit sales of goods and services. These exports include but are not limited to:

  • Consumables.
  • Agricultural commodities.
  • Raw materials.
  • Consumer durables.
  • Spare parts.
  • Services (by special policy endorsement).

Repayment terms on these exports typically range up to 180 days, although terms for agricultural commodities, fertilizer, consumer durables and capital equipment, may be extended to 360 days.

The products sold must be produced or manufactured in the United States and at least half the value of the exports (excluding price mark-up) must have been added by labor or materials exclusively of U.S. origin. Goods must be shipped from the United States and no value may be added to the product by the insured after export from the United States.

With specific exceptions, a policy may not provide insurance for goods or services destined for military use. A policy may not insure exports to or for use in a Marxist-Leninist country unless the President of the United States has determined that insured sales to that country are in the national interest. Exports are ineligible if they result in the loss of U.S. jobs or adverse economic impact on U.S. industry. Certain chemicals, pesticides and projects which may result in adverse environmental impact are ineligible or subject to additional review.

The policy insures sales made by financially viable entities such as:

  • U.S. corporations, partnerships, or individuals organized or residing in the United States.
  • Foreign corporations, partnerships, or individuals doing business in the United States.
  • Foreign sales corporations controlled by U.S. corporations, partnerships, or individuals organized or residing in the United States.

The buyer must be a creditworthy entity located in an acceptable country, while the policy insures credit sales to both private and public foreign buyers, and premiums for single-buyer policies are paid in advance of shipment.

In general, policies cover 90 to 98 percent of the commercial risk and 90 to 100 percent of specified political risks. Although the exporter is required to retain a percentage of the risk on each transaction, there is no first loss deductible for single-buyer policies.

Multi-Buyer Policy

The Multi-Buyer Export Credit Insurance Policy affords an exporter the opportunity to expand its overseas sales by providing comprehensive credit risk protection on the short-term sale of goods to many different buyers. It can be tailored to meet the exporter's foreign receivables insurance needs.

The Multi-Buyer Policy insures export credit sales of goods and services to both private and public foreign buyers. These exports include but are not limited to:

  • Consumables.
  • Agricultural commodities.
  • Raw materials.
  • Consumer durables.
  • Spare parts.
  • Services (by special policy endorsement).

Repayment terms on these exports typically range up to 180 days, although terms for agricultural commodities, fertilizer and consumer durables may be extended to 360 days by special endorsement.

The products sold must be produced or manufactured in the United States. At least half the value of the export (excluding price mark-up) must have been added by labor or materials exclusively of U.S. origin. Goods must be shipped from the United States. No value may be added to the product by the insured after export from the United States unless approved by Ex-Im Bank. Services must be performed by U.S.-based personnel in the United States or in the buyer's country.

With specific exceptions, a policy may not provide insurance for goods or services destined for military use. A policy may not insure exports to or for use in a Marxist-Leninist country unless the President of the United States has determined that insured sales to that country are in the national interest. Exports are ineligible if they result in the loss of U.S. jobs or adverse economic impact on U.S. industry. Certain chemicals, pesticides and projects which may result in adverse environmental impact are ineligible or subject to additional review

The policy insures sales made by financially viable entities such as:

  • U.S. corporations, partnerships, or individuals organized or residing in the United States.
  • Foreign corporations, partnerships, or individuals doing business in the United States.
  • Foreign sales corporations controlled by U.S. corporations, partnerships, or individuals organized or residing in the United States.

The buyer must be a creditworthy entity located in an acceptable country. Ex-Im Bank determines the amount of any exporter's insured buyer credit authority based in part on the needs and expertise of the exporter.

Ex-Im Bank bases the terms and conditions of a multi-buyer policy on the applicant's terms of sale, experience with export credit sales, its historical and anticipated export volume, foreign markets and the credit history of its buyers. Some policies may contain a Discretionary Credit Limit (DCL), which is an authorization to extend credit to a buyer, without prior approval from Ex-Im Bank, based on the needs and expertise of the insured. Buyers needing credit in excess of the insured's DCL authority may be covered under a policy through a Special Buyer Credit Limit (SBCL). Further, an SBCL for each buyer is necessary for a policy with no DCL or when the DCL is restricted by the Country Limitation Schedule. The SBCL covers a revolving line of credit to the buyer. After the insured receives payment for outstanding obligations, it may ship again to the buyer up to the SBCL amount within its terms and be insured. Insures are responsible for supplying Ex-Im Bank with credit information that supports their credit judgments under a DCL and credit requests under a SBCL.

Premiums for standard short-term comprehensive multi-buyer policies vary with the credit terms, exporter experience, the quality and number of buyers being insured, and the importing countries. Most policies require a minimum premium to be paid in advance at the beginning of every policy year. Premiums for multi-buyer policies generally are paid monthly in tandem with submission of a report of shipments and premiums payable.

In general, policies cover 90 to 98 percent of the commercial risk and 90 to 100 percent of specified political risks. In addition to retaining a percentage of the risk on each transaction, the exporter also may be required to absorb a first dollar loss, called the deductible, on losses that relate to transactions insured under a given policy.

For more information on Export Credit Insurance or for assistance in completing your application, please contact us.