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 (ECA’s) OECD guidelines Insurance builds customer loyalty Documentary Collections Cover risk with credit insurance

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

$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% Indemnity $1.5 mil$3 mil$2 mil$1 milPolicy Limit Quotes from Private Insurers

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/C’s do NOT guarantee payment L/C’s require expertise L/C may cost the sale if a competitor offers open account terms L/C’s 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$100,000 SHIPPING$ DAF(LARADO)$105,000 TERMS: SHIP 60 DAYS FROM REC OF IRR COMF LETTER OF CREDIT.

BUYER’S 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, DAY OPEN ACCOUNT$107,000 DIFFERENCE IN DELIVERED PRICE$6,575

IS YOU “STUFF” WORTH $6575 MORE THAN YOUR COMPETATORS