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Credit Risk Insurance Credit Risk Insurance OverviewOverview

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CREDIT RISK INSURANCECREDIT RISK INSURANCE

What It Is and What It Is and Is NotIs Not How Does It HelpHow Does It Help Underwriting Philosophies Underwriting Philosophies Policy TypesPolicy Types Avoid Documentary Pitfalls Associated Avoid Documentary Pitfalls Associated

with Claim Perfectionwith Claim Perfection Benefits to Exporter and Foreign BuyerBenefits to Exporter and Foreign Buyer

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GlobalizationGlobalization

More Aggressive Sales StrategyMore Aggressive Sales Strategy Higher Risk Emerging MarketsHigher Risk Emerging Markets Financing – Key Purchasing Financing – Key Purchasing

ConsiderationConsideration Increased Credit ExposuresIncreased Credit Exposures

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What is Credit Risk What is Credit Risk Insurance?Insurance?

Protection of A/R from Protection of A/R from 2 Default Triggers: 2 Default Triggers:

Commercial DefaultCommercial Default Insolvency; Devaluation Insolvency; Devaluation or, Protracted Defaultor, Protracted Default

Political DefaultPolitical Default Transfer Risk; Transfer Risk; Arbitrary Government Arbitrary Government Action; Civil UnrestAction; Civil Unrest

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What It Is NotWhat It Is Not

A Tool to Make a A Tool to Make a Bad Credit Good Bad Credit Good ((It renders It renders a good credit a good credit acceptable in a acceptable in a high risk market)high risk market)

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How Does Credit Risk How Does Credit Risk Insurance Help? Insurance Help?

Enhance Enhance CompetitivenessCompetitiveness

EnhanceEnhance Financing OptionsFinancing Options

EnhanceEnhance Protection Against Protection Against Payment DefaultPayment Default

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CREDIT RISK INSURANCE CREDIT RISK INSURANCE

PurposePurpose: : Expand sales, Improve financial Expand sales, Improve financial options and mitigate payment risk options and mitigate payment risk

Exploit Payment Risk to Competitive Exploit Payment Risk to Competitive AdvantageAdvantage

Covers: Covers: Commercial and /or Political RisksCommercial and /or Political Risks Does Not CoverDoes Not Cover: : Product disputes or Product disputes or

contract cancellationcontract cancellation Conditional: Conditional: Claim payment will be made Claim payment will be made

only if insured can demonstrate conformity to only if insured can demonstrate conformity to the policy’s terms and conditions the policy’s terms and conditions

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Who Uses Credit InsuranceWho Uses Credit Insurance

Western Europe – Western Europe – 83% of World Market 83% of World Market (Germany/26%, (Germany/26%, France/18%, France/18%, U.K./13%)U.K./13%)

Rest of World – 17% Rest of World – 17% of which North of which North America uses only America uses only 6%6%

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U.S. Firms Typically U.S. Firms Typically InsureInsure

Finished GoodsFinished Goods Work in ProgressWork in Progress Buildings/Buildings/

EquipmentEquipment PeoplePeople

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Accounts Receivable Accounts Receivable Portfolio Portfolio

A/R is your 2A/R is your 2ndnd most fluid asset most fluid asset after cash after cash

Timed Payment Timed Payment Obligations Obligations

Yet, > 94% of Yet, > 94% of open account open account sales in US are sales in US are uninsured uninsured

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POLICY TYPESPOLICY TYPES

Short-termShort-term Multi-Buyer Multi-Buyer (or Single(or Single Buyer)Buyer)

Medium-term Medium-term Single Buyer Single Buyer

LeasingLeasing (Operating or (Operating or Financing)Financing)

Bank L/CBank L/C

Credit Risk Ins.

Credit Risk Ins.

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STANDARD MULTI-BUYER STANDARD MULTI-BUYER POLICYPOLICY

MultipleMultiple Sales, Buyers, CountriesSales, Buyers, Countries Short-term:Short-term: 30 – 360 Days / 12-month period 30 – 360 Days / 12-month period Annual DeductibleAnnual Deductible Spread of RiskSpread of Risk (all open account sales) (all open account sales) Premium Based on Risk/Exporter ExperiencePremium Based on Risk/Exporter Experience Ledger & Credit DCLs AvailableLedger & Credit DCLs Available Coverage: 90% to 100% Coverage: 90% to 100% Assignable Assignable

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Short Term Single BuyerShort Term Single Buyer

Short-Term (30 - 360 Days)Short-Term (30 - 360 Days) 12 Month Policy Period12 Month Policy Period One or More ShipmentsOne or More Shipments Premium Rate Schedule (Exim)Premium Rate Schedule (Exim) Negotiated Premiums (Private Sector)Negotiated Premiums (Private Sector) Minimum Advance Premium PaymentsMinimum Advance Premium Payments No Deductibles / Assignable No Deductibles / Assignable

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Medium Term PolicyMedium Term Policy

Term: Term: 1-7 years (Export-Import Bank)1-7 years (Export-Import Bank) 15% Down 15% Down (Other Restrictions Apply)(Other Restrictions Apply) Comprehensive CoverageComprehensive Coverage Focus is more on Foreign Buyer Focus is more on Foreign Buyer

ObligationObligation Relatively Short Processing Relatively Short Processing Private Sector Programs Available Private Sector Programs Available

(AIG, EIC, FCIA, Unistrat, Zurich) (AIG, EIC, FCIA, Unistrat, Zurich)

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Evaluating an ApplicationEvaluating an ApplicationMajor Items NeededMajor Items Needed

Financial StatementsFinancial Statements Sales Volume - Domestic & Sales Volume - Domestic &

IntlIntl Average A/R BalanceAverage A/R Balance 3-year Loss History3-year Loss History Analysis of Credit ProceduresAnalysis of Credit Procedures Financial Information on Top Financial Information on Top

Tier Buyers - Financials, Tier Buyers - Financials, Bank & Trade References, Bank & Trade References, Favorable Credit Agency Favorable Credit Agency ReportsReports

Desired Credit LimitsDesired Credit Limits For Export Programs, sales For Export Programs, sales

by country breakdownby country breakdown

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Pricing Based OnPricing Based On

Country RiskCountry Risk Industry RiskIndustry Risk Buyer RiskBuyer Risk Terms of Payment Terms of Payment (the more liberal your (the more liberal your

terms, the less quality in your A/R – time terms, the less quality in your A/R – time increases uncertainty of payment ) increases uncertainty of payment )

Loss RecordLoss Record Deductible (losses/sales X projected Deductible (losses/sales X projected

sales)sales)

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Benefits to ExporterBenefits to Exporter

Enhance Overall CompetitivenessEnhance Overall Competitiveness Contribute to Bottom LineContribute to Bottom Line Improve Cash FlowImprove Cash Flow Reduce DSOReduce DSO Lower Loss ReservesLower Loss Reserves Increase Collateral Base & Borrowing PowerIncrease Collateral Base & Borrowing Power Mitigate Chances of Payment DefaultMitigate Chances of Payment Default And, Premiums are Tax DeductibleAnd, Premiums are Tax Deductible

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Benefits to Foreign BuyerBenefits to Foreign Buyer

L/C Costs AvoidedL/C Costs Avoided Not Forced to Borrow LocallyNot Forced to Borrow Locally U.S. Interest RatesU.S. Interest Rates 100% Financing of Short-Term 100% Financing of Short-Term

Credits Credits

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Replace Letters of Credit

L/Cs do Not guarantee payment L/Cs require expertise L/C may cost the sale L/Cs tie up buyer’s funds or credit Insurance eliminates high local int. rates Insurance eliminates buyer’s bank fees Insurance builds customer loyalty

2020

List of InsurersList of Insurers ACEACE AIGAIG AtradiusAtradius Coface North America Coface North America Euler Hermes (ACI)Euler Hermes (ACI) Export-Import Bank of the USAExport-Import Bank of the USA FCIAFCIA HCCHCC ZurichZurich