Export Credit Insurance for

Managing risk, Improve Financing Facilitating Trade

Kathy Edwards Global 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 Not
A means to make a bad credit good Primary source of repayment

Advantages of Credit Insurance

Protection Against Bad Debt Loss Increased Sales

Better Borrowing Position with Insured Receivables

Credit Information Resource

Collection Services
Factoring

Types of Coverage
Commercial Risks
Buyer goes bankrupt Death Default of payment for any reason other than product dispute

Political Risk Transfer risk

Government preventing release of funds war/revolution currency inconvertibility loss of import/export license (Contract Frustration)

Catagories of Insurers
Public Underwriters Private Underwriters

Public Underwriters
Export-Import Bank of the United States
Defined programs and costs Subject to US Government policies Small business policies Short term, medium term, long term Single buyer or multi-buyer Pay as you go to improve cash flow

Export Credit Agencies (ECAs)

OECD guidelines
Insurance builds customer loyalty

Underwriting Philosophies
Exporter
Length of time in business Financial information Credit approval experience Losses

Underwriting Buyers
Trade References Credit reports
D&B International Coface Graydon

Financial information

Private Insurance Market Export & Domestic Coverage

AIG Coface (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 exporter Greater exporter responsibility for credit evaluation of buyer Deficient exporter credit files may result in refusal of claim payment Minimum premium payable up front Lower rates but greater possibility of purchasing unnecessary coverage

Quotes from Private Insurers

Policy Limit

$1 mil

$2 mil

$3 mil

$1.5 mil

Indemnity
Annual Deductible Discretionary Credit Limit -DCL Premium Rate Estimated Premium on sales of $6 Mil

90%
$0 $20,000 .55% $33,000

90%
$50,000 $150,000 .50% $30,000

90%
$0 $0 .49% $29,400

95%
$40,000 $100,000 .45% $27,000

Policy Assignment
Benefits of policy can be assigned to a bank or lending institution Immediate availability of funds Pass cost of funds to importer Claims 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 Credit

Letters of Credit
L/Cs do NOT guarantee payment L/Cs require expertise
L/C may cost the sale if a competitor offers open account terms L/Cs tie up buyers funds or credit facilities Insurance eliminates high local interest costs Insurance 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 SHIPPING $100,000 $5000.00

DAF(LARADO) $105,000 TERMS: SHIP 60 DAYS FROM REC OF IRR COMF LETTER OF CREDIT.

BUYERS VIEW
LOC $105,000 BANK FEE 5% $5,250 SUBTOTAL $110,250 COST OF $$ * $3,325 LANDED COST $113,575

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

60 DAY OPEN ACCT WITH INSURANCE

EXWORKS $100,000 SHIPPING $5,000 DAF $105,000 CREDIT INSURANCE* $1,000 FINANCE % $1,000 LANDED COST $107,000

*premium at 1% for 60 days

LOC PRICE

$113,575

60 DAY OPEN ACCOUNT $107,000 DIFFERENCE IN DELIVERED PRICE $6,575

IS YOU STUFF WORTH

$6575 MORE THAN YOUR COMPETATORS