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Credit Insurance
Protection Against Buyer Default

       Prague, 3rd May 2005


          Certified Quality
           IS...
Presentation synopsis

• Company introduction
• Role of credit insurance in business transaction
     – Protection
     – ...
EGAP – Company Introduction

• Established in 1992 as a joint-stock company
    – sole shareholder the Czech Republic, sha...
Turnover covered 2001 through 2004 (in CZK
            million)


          Marketable risks insurance
120 000
          I...
Total premium written 2001 through 2004 (in
             CZK million)


                                                  ...
Claims paid 2001 through 2004

        Marketable risks insurance
1 200   Insurance with state support      1 035 (51)
   ...
Territorial Structure of non marketable insurance
                in 2004


                            Others (42 countri...
Territorial Structure of Commercial/Marketable
        Risk Insurance in 2004

                                           ...
Marketable Risk Credit Insurance Market

      Atradius (including Gerling)
600   Gerling-Konzern                         ...
Credit insurance meaning




 Twofold role of credit insurance

I. Protection against buyer’s default

II. Part of working...
Product differentiation




Protection against buyer’s default
• Variety of insurance products covering
    several reason...
Key products of non-marketable risk
              insurance
Political
risk &        S/T supplier credit                B
b...
Non-marketable risk insurance - product “D“

                           1) Contract between the Czech exporter and a forei...
Non-marketable risk insurance - products “B & C“

                            1. Export contract concluded between the Cze...
Non-marketable risk insurance - product “F“

                         1) Export contract between the Czech exporter (the
 ...
Non-marketable risk insurance - product “V“

                           • 1) Export contract concluded by and
            ...
Non-marketable risk insurance – product “Z“


             Insurance provides coverage for the bank issuing the guarantee
...
Whole turnover policy GA.04 – key product of
commercial/marketable risk insurance




               Certified Quality
   ...
Scope of coverage GA.04

We insure:                              We do not insure
Risk of non-payment                    ...
Underwriting principles of GA 04

    Underwriting through credit limits

                                         Buyer 1...
Advantages of credit insurance

• Insurance protection against non-payment
caused by either commercial or political risks
...
Advantages for Banks, Factors etc.


• Transfer of the risk of non-repayment of
credit on EGAP
• Credit management with in...
Product - GA / GA.04

•Notification of loss
•Waiting period
•Time for investigation and
administrative processing of the c...
Reason for credit insurance




Part of working capital financing framework

•CI & Trade finance
•Cooperation with Banks, ...
Credit Insurance & Trade Finance

•Shift in Demand for Credit Insurance
   •Combination of Finance & Credit Insurance

•So...
Credit Insurance & Trade Finance

 Multinationals

    •Looking for off-balance sheet finance
       Non-recourse or limit...
Credit Insurance & Trade Finance

SME’s
  •Looking for improved finance
      Better credit lines or
      Better terms an...
Credit Insurance & Trade Finance

Banks & FI’s
• Change in focus
   •Away from Corporate Banking towards Trade
   Finance
...
Finance through LCs

• Heavy instrument
   – Significant cost
   – Lot of administrative work
• Dependent on the negotiati...
Trade Finance Letter of Credits Scheme


   Supplier             Contract
                                        Buyer
  ...
Trade Finance Credit Insurance Scheme


   Supplier               Contract
                                          Buyer...
Organisational changes in EGAP




EU communication on marketable risk
insurance

• marketable risks definition
   – EU 25...
Present EGAP structure:
            Czech Republic
                                                     Shareholder: Czech...
New structure after spin-off procedure

                                       Shareholder: Czech Republic                ...
Conclusion



Thank You!




Martin Růžička
ruzicka@egap.cz
www.egap.cz



                  Certified Quality
           ...
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Transcript of "Certified Quality"

  1. 1. Credit Insurance Protection Against Buyer Default Prague, 3rd May 2005 Certified Quality ISO 9001:2000
  2. 2. Presentation synopsis • Company introduction • Role of credit insurance in business transaction – Protection – Financing • Credit insurance with state support – non-marketable risks • Credit insurance without state support – marketable risks • Changes in EGAP organizational structure – compliance with EU communication on marketable risks credit insurance Certified Quality ISO 9001:2000
  3. 3. EGAP – Company Introduction • Established in 1992 as a joint-stock company – sole shareholder the Czech Republic, share capital: CZK 1,300 million • International co-operation – member of the Berne Union – represents state in the OECD Export Credit Group – member of CreditAlliance led by COFACE – technical co-operation • Two main lines of business activities: – Non-marketable risk insurance • commercial risks of buyer's default in long-term payment transactions and/or from political risks • for risks where a market re-insurance is not available (i.e. payment terms over 2 years and/or export destinations with political risks) • insurance funds and reserves supported by the state (Act No. 58/1995 Coll. ) – Marketable risk insurance •for all risks of buyer's default where a private re-insurance scheme is available Certified Quality ISO 9001:2000
  4. 4. Turnover covered 2001 through 2004 (in CZK million) Marketable risks insurance 120 000 Insurance with state support 102 052 86 180 83 925 100 000 69 847 80 000 51 085 85 006 60 000 65 232 53 596 40 000 20 000 35 095 16 251 18 693 17 046 0 2001 2002 2003 2004 Certified Quality ISO 9001:2000
  5. 5. Total premium written 2001 through 2004 (in CZK million) Marketable risks insurance 1 282 1 400 Insurance with State support 1 200 191 1 000 800 559 452 438 600 1 091 278 400 183 217 200 269 281 221 0 2001 2002 2003 2004 Certified Quality ISO 9001:2000
  6. 6. Claims paid 2001 through 2004 Marketable risks insurance 1 200 Insurance with state support 1 035 (51) 850 (138)* 1 000 166 (36) 111 (124) 800 600 478 (82) 47 (68) 375 (124) 869 (15) 400 739 (14) 103 (110) 431 (14) 200 272 (14) 0 2001 2002 2003 2004 *Note. In brackets – numbers of claims paid Certified Quality ISO 9001:2000
  7. 7. Territorial Structure of non marketable insurance in 2004 Others (42 countries under 2 %) Vietnam Bulgaria USA 11% Pre-export financing 2% 15% 4% 14% Ukraine 3% Turkey 3% Slovakia India 26% Russia 3% 19% Certified Quality ISO 9001:2000
  8. 8. Territorial Structure of Commercial/Marketable Risk Insurance in 2004 Declaration of Turnover 7% )1 % ,5 (1 es tri un r co he % ot 46 li c ub ep R 2% ch ce ze C an Fr 3% ry 3% ga SA un U H 3% ) ) ria 5% % 0% st (6 (1 Au kia 5% nd y ova ly la an Sl Ita Po er m G Certified Quality ISO 9001:2000
  9. 9. Marketable Risk Credit Insurance Market Atradius (including Gerling) 600 Gerling-Konzern 505 Hermes (Allianz) 436 Euler Hermes (Čescob) EGAP 12,6 % 500 11,5 % 11,2 % 32,3 % 400 27,5 % 300 200 55,1 % 49,8 % 100 0 2003 2004 Certified Quality ISO 9001:2000
  10. 10. Credit insurance meaning Twofold role of credit insurance I. Protection against buyer’s default II. Part of working capital financing framework Certified Quality ISO 9001:2000
  11. 11. Product differentiation Protection against buyer’s default • Variety of insurance products covering several reasons of non-payment of trade receivables • A – non-marketable risk insurance • B – marketable risk insurance Certified Quality ISO 9001:2000
  12. 12. Key products of non-marketable risk insurance Political risk & S/T supplier credit B buyer risk MLTT supplier credit C Exporter’s output risk Buyer credit D Confirmed L/C E Political risks Pre-export financing F Export Contract related bonds Z insurance Investment insurance I Certified Quality ISO 9001:2000
  13. 13. Non-marketable risk insurance - product “D“ 1) Contract between the Czech exporter and a foreign buyer 2) Loan agreement between the domestic bank and the foreign bank; the domestic bank extends a loan to the foreign bank to finance the contract 3) Obligation of the foreign bank to extend this credit to the foreign buyer 4) An insurance policy signed with the domestic bank to cover the risks arising from the loan extended to the foreign buyer's bank 5) The exporter's obligation to fulfill certain duties towards to the domestic bank 6) Indemnification paid to the Insured 7) Possibility of recourse by EGAP against the exporter in the case the exporter is responsible for the insurance loss. Certified Quality ISO 9001:2000
  14. 14. Non-marketable risk insurance - products “B & C“ 1. Export contract concluded between the Czech exporter and a foreign buyer 2. The bank covers the export receivable by a short-term credit 3. Insurance policy of the type B for coverage of the political risk of non-payment of export receivables 4. Indemnification paid to the Insured or, at the Insured's request, to a third party (the bank) Certified Quality ISO 9001:2000
  15. 15. Non-marketable risk insurance - product “F“ 1) Export contract between the Czech exporter (the debtor) and the foreign buyer; the Insured bank provides pre-export financing for its realization 2) Credit agreement concluded between the Insured bank and the exporter 3) Insurance policy between EGAP and the financing institution 4) Indemnification paid to the Insured 5) Insurance of the production risk 6) Insurance of the related export credit 7) Related export credit 8) Possibility of recourse of EGAP against the exporter in the case that the exporter has caused an insurance loss Certified Quality ISO 9001:2000
  16. 16. Non-marketable risk insurance - product “V“ • 1) Export contract concluded by and between the exporter and the importer • 2) Short-term credit contract • 3) Insurance policy of the type V • 4) Indemnification for the insured (the exporter) with the possibility of its assignment for the benefit of the financing bank Certified Quality ISO 9001:2000
  17. 17. Non-marketable risk insurance – product “Z“ Insurance provides coverage for the bank issuing the guarantee (bond) on behalf of the exporter against its unfair and/or fair calling by the foreign buyer or the buyer's bank while the exporter or participant in a tender have not breached his/her obligations arising from the export contract or from the tender conditions •bid bonds •performance bonds •advance payment bonds 4.5.2010 Certified Quality ISO 9001:2000
  18. 18. Whole turnover policy GA.04 – key product of commercial/marketable risk insurance Certified Quality ISO 9001:2000
  19. 19. Scope of coverage GA.04 We insure: We do not insure Risk of non-payment  Disputed receivables Maximum payment term:  Intra-group transactions 24 months  Public buyers in the  Territorial scope Czech Republic 102 countries  Consumers, Users  Protracted default  Risks resulting from Waiting period - 5 month plus 45 days failures of  Bankruptcy policyholder/insured Waiting period - 45 days  Risks above credit limits Certified Quality ISO 9001:2000
  20. 20. Underwriting principles of GA 04 Underwriting through credit limits Buyer 1 Credit limit 1 Buyer 2 Credit limit 2 Seller/ Policyholder Buyer ... Credit limit... Buyer n Credit limit n • Whole-turnover policies, in order to improve risks diversification and to avoid negative selection • Individual limits on buyers and/or Discretionary limits • Prices (of premiums) are set irrespective of specific buyers’ risks. Certified Quality ISO 9001:2000
  21. 21. Advantages of credit insurance • Insurance protection against non-payment caused by either commercial or political risks • Continuous monitoring of buyer‘s credit creditworthiness • Management of credit portfolio • Assignment of indemnification – cost-effective access to working capital Certified Quality ISO 9001:2000
  22. 22. Advantages for Banks, Factors etc. • Transfer of the risk of non-repayment of credit on EGAP • Credit management with independent expertise • Advantageous assessment of the risk- weighted portfolio for capital adequacy purposes. • Transfer of FI‘s credit commitment from debtor to EGAP Certified Quality ISO 9001:2000
  23. 23. Product - GA / GA.04 •Notification of loss •Waiting period •Time for investigation and administrative processing of the claim – 30 days •Time for technical processing of indemnification payment – 15 days •Claim payment = waiting period + investigation + technical processing Certified Quality ISO 9001:2000
  24. 24. Reason for credit insurance Part of working capital financing framework •CI & Trade finance •Cooperation with Banks, Factors … Certified Quality ISO 9001:2000
  25. 25. Credit Insurance & Trade Finance •Shift in Demand for Credit Insurance •Combination of Finance & Credit Insurance •Source of Demand A. Companies •Multinationals •SME’s B. Financial institutions •Banks •Factors •Forfeiters •Leasing Certified Quality ISO 9001:2000
  26. 26. Credit Insurance & Trade Finance Multinationals •Looking for off-balance sheet finance Non-recourse or limited recourse finance Regional Programs with one banking group •Looking to offer finance to its customers Alternative to supplier finance Banks are looking for a guarantee of their clients •Alternative to a Letter of Credit Substitute product Certified Quality ISO 9001:2000
  27. 27. Credit Insurance & Trade Finance SME’s •Looking for improved finance Better credit lines or Better terms and conditions •Credit Insurance as part of the security package •As an alternative to a Letter of Credit When not available Certified Quality ISO 9001:2000
  28. 28. Credit Insurance & Trade Finance Banks & FI’s • Change in focus •Away from Corporate Banking towards Trade Finance •Credit insurance challenges in this process •Risk Management of buyers of their clients •Speed & cost of decision making •Risk transfer Certified Quality ISO 9001:2000
  29. 29. Finance through LCs • Heavy instrument – Significant cost – Lot of administrative work • Dependent on the negotiating power – SME’s may have fewer available LC’s • As a buyer • As a supplier • Availability and value depends on the country and rating of the bank opening an LC Certified Quality ISO 9001:2000
  30. 30. Trade Finance Letter of Credits Scheme Supplier Contract Buyer Supply Finance/ Payment Discounting Bank L/C L/C issuing Bank Payment Certified Quality ISO 9001:2000
  31. 31. Trade Finance Credit Insurance Scheme Supplier Contract Buyer Supply Credit Payment insurance Credit Finance Insurer Bank Payment Certified Quality ISO 9001:2000
  32. 32. Organisational changes in EGAP EU communication on marketable risk insurance • marketable risks definition – EU 25 – payment periods up to 2 years • no state support allowed Certified Quality ISO 9001:2000
  33. 33. Present EGAP structure: Czech Republic Shareholder: Czech Republic 100 % State ministries having shareholders rights: Ministry of finance 520 votes Ministry of industry and trade 468 votes Exportní garanční a Ministry of foreign affairs 156 votes pojišťovací společnost, a.s. Ministry of agriculture 156 votes (EGAP) Commercial Insurance Insurance with state support Insurance provided on own account with the Insurance provided on own account, where state guarantees and international private reinsurance support. Risk subsidizes special funds, if needed. of non-payment for 102 countries. Mainly export credits with payment terms exceeding 2 years, or coverage for exports to countries, where a private insurance is not available More than 55 % market share 100 % market share Certified Quality ISO 9001:2000
  34. 34. New structure after spin-off procedure Shareholder: Czech Republic 100 % Czech Republic Paid capital CZK 1,300,000,000 100 % shares State ministries having shareholders rights: Ministry of finance 520 votes Ministry of industry and trade 468 votes Ministry of foreign affairs 156 votes Exportní garanční a Ministry of agriculture 156 votes pojišťovací společnost, a.s. (EGAP) 100 % share SPIN-OFF Shareholder: EGAP 100 % Paid capital CZK 160,000,000 in cash Komerční úvěrová pojišťovna EGAP, a.s. Commercial Credit Insurance Corporation EGAP Certified Quality ISO 9001:2000
  35. 35. Conclusion Thank You! Martin Růžička ruzicka@egap.cz www.egap.cz Certified Quality ISO 9001:2000
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