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Export Credit Insurancefor
Managing risk, Improve Financing Facilitating Trade
Kathy EdwardsGlobal Business Solutions Corp.
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What is Credit Insurance?Insurance against non-payment of accounts receivable
Protection of a major asset on your balance sheet
Collateral
Sleep Insurance
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What it is NotA means to make a bad credit good
Primary source of repayment
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Advantages of Credit InsuranceProtection Against Bad Debt Loss
Increased Sales
Better Borrowing Position with Insured
Receivables
Credit Information Resource
Collection Services
Factoring
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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)
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Catagories of Insurers
Public Underwriters
Private Underwriters
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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
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Underwriting Philosophies
ExporterLength of time in business
Financial information
Credit approval experience
Losses
Underwriting BuyersTrade ReferencesCredit reports
• D&B International• Coface• Graydon
Financial information
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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
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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
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$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
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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
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Credit Insurance as a Sales Aid
Open account sales
Better credit terms
Develop new markets
Less “Creative” sales terms from
sales staff
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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
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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?
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Dollars and Sense
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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.
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BUYER’S VIEWLOC $105,000
BANK FEE 5% $5,250SUBTOTAL $110,250
COST OF $$ * $3,325LANDED COST $113,575
*I=prt. $105x19%/12x2=
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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
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LOC PRICE $113,575
60 DAY OPEN ACCOUNT $107,000
DIFFERENCEIN DELIVEREDPRICE $6,575
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IS YOU “STUFF” WORTH
$6575 MORE THAN YOUR COMPETATORS