Percentage of Risk Cover in Export Credit Insurance

The analysis of the cover’s percentage shows that coverage accorded by ECAs and insurance companies is generally less than 100%: exporters are asked to bear part of the risk, and this part differs depending on the characteristics of the insurance policy.

Some institutions grant cover to supplier credits extended by the exporter, but not to buyer credits where the exporter’s bank lends to the buyer or his/her bank, while others accept both but with different coverage.

General criteria according to which a defined percentage of cover is provided are the following:

• type of risk: in most of the OECD and non OECD countries higher cover is granted for political (90-95%) than for commercial risks (85-90%);

• type of debtor: cover is higher in case of a public debtor, or when the debtor or the guarantor is a bank as opposed to the case of a private debtor; this is
the trend required by the Belgium Office National di Ducroire (OND);

• type of country of destination: in some cases, cover is higher if the country of destination is a member of the OECD; this is the criteria employed by the
Portuguese Companhia de Seguro de Creditos (COSEC) and many others.

Particular attention has to be given to the Export Credit Insurance Corporation of Poland (KUKE), which distinguishes between short and medium/ long term credits: in the first case, the cover for political and catastrophic risks is up to 90%, and for commercial risks is up to 85%. In the latter case: under Buyer Credit facilities for both political catastrophic risks and commercial risk, up to 100% of the credit value while, under Supplier Credit facilities, up to 90% of the credit value for political/catastrophic risks; up to 85% of the value for commercial risks.

The actual percentage of cover granted is decided not only on the basis of the total transaction value, but also on the terms of payment requested and, especially, on the basis of an accurate assessment of the credit worthiness of both the country and the buyer. Such assessment is conducted using different sources of information, such as specific company’s information, International Monetary Fund and World Bank reports, and information from other diplomatic missions.

Even if the coverage does not differ greatly from one country to another, and the actual percentage granted depends on the characteristics of the buyer, rules of origin may allow the exporter to apply for an insurance policy in a country where conditions are more advantageous.

The concept of “conditions” relates not only to the amount reimbursed in case of loss but also to the premium charged, to the availability of policies covering particular types of risks or certain kinds of goods and to the length of the contract. The exporter can successfully apply for an insurance policy in a different country only if the terms of rules of origin, previously underlined, are respected.