1 Credit Risk Insurance Overview

2 CREDIT RISK INSURANCE What It Is and Is Not What It Is and Is Not How Does It Help How Does It Help Underwriting Philosophies Underwriting Philosophies Policy Types Policy Types Avoid Documentary Pitfalls Associated with Claim Perfection Avoid Documentary Pitfalls Associated with Claim Perfection Benefits to Exporter and Foreign Buyer Benefits to Exporter and Foreign Buyer

3 Globalization More Aggressive Sales Strategy More Aggressive Sales Strategy Higher Risk Emerging Markets Higher Risk Emerging Markets Financing – Key Purchasing Consideration Financing – Key Purchasing Consideration Increased Credit Exposures Increased Credit Exposures

4 What is Credit Risk Insurance? Protection of A/R from 2 Default Triggers: Commercial Default Insolvency; Devaluation or, Protracted Default Commercial Default Insolvency; Devaluation or, Protracted Default Political Default Transfer Risk; Arbitrary Government Action; Civil Unrest Political Default Transfer Risk; Arbitrary Government Action; Civil Unrest

5 What It Is Not A Tool to Make a Bad Credit Good (It renders a good credit acceptable in a high risk market) A Tool to Make a Bad Credit Good (It renders a good credit acceptable in a high risk market)

6 How Does Credit Risk Insurance Help? Enhance Competitiveness Enhance Competitiveness Enhance Financing Options Enhance Financing Options Enhance Protection Against Payment Default Enhance Protection Against Payment Default

7 CREDIT RISK INSURANCE Purpose: Expand sales, Improve financial options and mitigate payment risk Purpose: Expand sales, Improve financial options and mitigate payment risk Exploit Payment Risk to Competitive Advantage Exploit Payment Risk to Competitive Advantage Covers: Commercial and /or Political Risks Covers: Commercial and /or Political Risks Does Not Cover: Product disputes or contract cancellation Does Not Cover: Product disputes or contract cancellation Conditional: Claim payment will be made only if insured can demonstrate conformity to the policy’s terms and conditions Conditional: Claim payment will be made only if insured can demonstrate conformity to the policy’s terms and conditions

8 Who Uses Credit Insurance Western Europe – 83% of World Market (Germany/26%, France/18%, U.K./13%) Western Europe – 83% of World Market (Germany/26%, France/18%, U.K./13%) Rest of World – 17% of which North America uses only 6% Rest of World – 17% of which North America uses only 6%

9 U.S. Firms Typically Insure Finished Goods Finished Goods Work in Progress Work in Progress Buildings/Equipment Buildings/Equipment People People

10 Accounts Receivable Portfolio A/R is your 2 nd most fluid asset after cash A/R is your 2 nd most fluid asset after cash Timed Payment Obligations Timed Payment Obligations Yet, > 94% of open account sales in US are uninsured Yet, > 94% of open account sales in US are uninsured

11 POLICY TYPES Short-term Multi-Buyer (or Single Buyer) Short-term Multi-Buyer (or Single Buyer) Medium-term Single Buyer Medium-term Single Buyer Leasing (Operating or Financing) Leasing (Operating or Financing) Bank L/C Bank L/C Credit Risk Ins.

12 STANDARD MULTI-BUYER POLICY Multiple Sales, Buyers, Countries Multiple Sales, Buyers, Countries Short-term: 30 – 360 Days / 12-month period Short-term: 30 – 360 Days / 12-month period Annual Deductible Annual Deductible Spread of Risk (all open account sales) Spread of Risk (all open account sales) Premium Based on Risk/Exporter Experience Premium Based on Risk/Exporter Experience Ledger & Credit DCLs Available Ledger & Credit DCLs Available Coverage: 90% to 100% Coverage: 90% to 100% Assignable Assignable

13 Short Term Single Buyer Short-Term ( Days) Short-Term ( Days) 12 Month Policy Period 12 Month Policy Period One or More Shipments One or More Shipments Premium Rate Schedule (Exim) Premium Rate Schedule (Exim) Negotiated Premiums (Private Sector) Negotiated Premiums (Private Sector) Minimum Advance Premium Payments Minimum Advance Premium Payments No Deductibles / Assignable No Deductibles / Assignable

14 Medium Term Policy Term: 1-7 years (Export-Import Bank) Term: 1-7 years (Export-Import Bank) 15% Down (Other Restrictions Apply) 15% Down (Other Restrictions Apply) Comprehensive Coverage Comprehensive Coverage Focus is more on Foreign Buyer Obligation Focus is more on Foreign Buyer Obligation Relatively Short Processing Relatively Short Processing Private Sector Programs Available (AIG, EIC, FCIA, Unistrat, Zurich) Private Sector Programs Available (AIG, EIC, FCIA, Unistrat, Zurich)

15 Evaluating an Application Major Items Needed Financial Statements Financial Statements Sales Volume - Domestic & Intl Sales Volume - Domestic & Intl Average A/R Balance Average A/R Balance 3-year Loss History 3-year Loss History Analysis of Credit Procedures Analysis of Credit Procedures Financial Information on Top Tier Buyers - Financials, Bank & Trade References, Favorable Credit Agency Reports Financial Information on Top Tier Buyers - Financials, Bank & Trade References, Favorable Credit Agency Reports Desired Credit Limits Desired Credit Limits For Export Programs, sales by country breakdown For Export Programs, sales by country breakdown

16 Pricing Based On Country Risk Country Risk Industry Risk Industry Risk Buyer Risk Buyer Risk Terms of Payment (the more liberal your terms, the less quality in your A/R – time increases uncertainty of payment ) Terms of Payment (the more liberal your terms, the less quality in your A/R – time increases uncertainty of payment ) Loss Record Loss Record Deductible (losses/sales X projected sales) Deductible (losses/sales X projected sales)

17 Benefits to Exporter Enhance Overall Competitiveness Enhance Overall Competitiveness Contribute to Bottom Line Contribute to Bottom Line Improve Cash Flow Improve Cash Flow Reduce DSO Reduce DSO Lower Loss Reserves Lower Loss Reserves Increase Collateral Base & Borrowing Power Increase Collateral Base & Borrowing Power Mitigate Chances of Payment Default Mitigate Chances of Payment Default And, Premiums are Tax Deductible And, Premiums are Tax Deductible

18 Benefits to Foreign Buyer L/C Costs Avoided L/C Costs Avoided Not Forced to Borrow Locally Not Forced to Borrow Locally U.S. Interest Rates U.S. Interest Rates 100% Financing of Short-Term Credits 100% Financing of Short-Term Credits

19 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

20 List of Insurers ACE ACE AIG AIG Atradius Atradius Coface North America Coface North America Euler Hermes (ACI) Euler Hermes (ACI) Export-Import Bank of the USA Export-Import Bank of the USA FCIA FCIA HCC HCC Zurich Zurich