Improving the Role of Eximbanks/ECAs in the OIC Member States
123
Percentage of
cover
The share of the risk or the contract value of a transaction or project that an
export credit agency is willing to cover. In short-term business, export credit
agencies never insure 100 percent of the risk or the contract value. Normally
they will cover 80 to 90 percent of the commercial risk and 85 to 95 percent of
the political risk. Some agencies will not allow insured parties to pass on this
residual risk to other parties (e.g., banks or other insurers). For medium- and
long-term supplier credits, broadly the same arrangements apply. But for buyer
credits, some agencies will insure 100 percent of the credit (i.e., 100 percent of
the 85 percent of the contract that is financed, excluding the 15 percent down
payment under the terms of the OECD Arrangement). Most agencies, however,
will not do so, preferring the exporter or bank to carry some of the risk, even if
only 5 percent or less. This difference in approach often makes coinsurance or
multisourcing more complicated.
Performance
bond,
performance
guarantee
A facility normally issued by a commercial bank to a buyer, in effect to guarantee
that the exporter will meet the terms of its contract with the buyer. The bond or
guarantee will normally be for only part (say, 10 percent) of the contract value.
Performance bonds and guarantees are normally conditional; that is, they can
usually only be called if the buyer can demonstrate (in accordance with the
terms of the facility) breach of contract by the exporter. However, sometimes
these bonds are unconditional (see demand bond). Many export credit agencies
will provide cover against the unfair calling for political reasons of these bonds
Policy (1) A facility issued by an export credit agency, whether for short- term or for
medium- or long-term business.
(2) The document establishing such a facility.
Policyholder The insured party in an export credit facility, normally an exporter or a bank.
Political risk The risk of nonpayment on an export contract or project due to action by an
importer's or buyer's host government. Such action may include intervention to
prevent the transfer of payments, cancellation of a license, or acts of war or civil
war. Nonpayment by sovereign buyers themselves is also a political risk. Political
risk is one of the two main categories of risks insured by export credit agencies
(the other being commercial risk). Some export credit agencies cover political
risks in their own countries, especially the cancellation of export licenses. In
recent decades the most common political risk claims have been due to inability
to convert and transfer foreign exchange, but in these circumstances buyers
must first have made local currency deposits. See also investment insurance.
Postshipment
cover
Insurance of risks arising during the postshipment period. Sometimes called
credit cover.
Postshipment
period
The period from the date on which goods are shipped or accepted until the last
payment has been received. Sometimes called the credit period.
Precredit cover See preshipment cover.