[00:00.00]Different types of credit cover
[00:02.51]·HEADING A
[00:04.23]Offered by a number of underwriters in the UK and on the continent,this policy structure protects against the catastrophe risk.
[00:13.09]Sometimes called "Excess of Loss" or "Stop Loss cover",
[00:17.48]the underwriting philosophy is centred around the insured's existing in-house credit management controls.
[00:24.71]The insured will agree a "first loss" or non-qualifying loss designed to eliminate predictable lower level losses.
[00:32.89]Bad debt losses in excess of this level accumulate within a second predetermined band or layer,
[00:39.76]referred to as the annual aggregate.
[00:42.37]A layer of cover is then purchased in excess of this self-insured proportion.
[00:47.96]Cover of up to 100% of each qualifying loss in excess of this agreed annual aggregate is available.
[00:55.67]The cover is normally fixed up to an agreed ceiling of annual losses,known as the "maximum liability."
[01:03.84]·HEADING B
[01:05.15]This is the more traditional credit insurance policy,normally protecting all sales under a single policy.
[01:12.57]The policy provides the credit manager with up-to-date financial advice on all principal customers.
[01:19.07]Generally the insured will self-insure an element of each credit limit.Normally indemnity is 80%-85%.
[01:29.18]At commencement of the policy an assessment is made of turnover likely to be declared under the policy.
[01:36.26]The underwriter will agree an annual premium rate charged against such declarations,usually quarterly.
[01:43.47]·HEADING C
[01:44.99]Some insurers now offer pre-delivery cover as an additional element of whole turnover cover.
[01:51.60]Indemnity is the same as normal credit risk and premium is either charged as an additional rate on turnover or is combined in a single charge.
[02:01.65]·HEADING D
[02:03.06]More companies are now expanding their export business and require a simple,
[02:08.57]cost-effective credit insurance policy which does not automatically provide unnecessary political risk cover.
[02:16.15]Multi market insurance has been designed to provide cover in a single policy against the risk of non-payment,
[02:22.99]due to insolvency or protracted default,in the UK and most OECD markets.
[02:29.50]All credit risks are covered with 90% indemnity for both UK and export sales.
[02:36.29]Financial advice is also available on major buyers.
[02:40.13]·HEADING E
[02:41.33]Occasionally one debtor may represent an inordinately large element of a company's turnover.
[02:48.54]Although one argument suggests that if the buyer is undoubted,then credit insurance cover is not necessary,
[02:55.91]the catastrophic effect of non-payment,due to unforeseeable or uncontrollable events,would invariably suggest otherwise.
[03:03.93]Principal customer cover provides protection against non-payment through insolvency of larger buyers.
[03:10.98]The benefit of financial advice is available and indemnities vary between 70%-90%.
[03:17.64]This type of cover is sometimes referred to as "Datum Line" cover.
[03:22.87]·HEADING F
[03:24.28]Insures individual target risks or the large single contract.
[03:29.40]Premium can be charged as a percentage rate on insured sales,but is more likely to be calculated as a rate on contract value.
[03:38.51]Indemnity varies from 75% to 100%,dependent upon the quality of risk.
[03:45.25]·HEADING G
[03:46.61]Insures the advance payments made to a supplier prior to receipt of goods.
[03:52.02]The policy can also be extended to cover consequential loss which may be incurred if the supplier defaults.
[03:59.18]Policies are usually underwritten on a single contract basis with premium charged as a fixed amount on contract value.
[04:07.82]Indemnity up to 100% is available.
[04:11.64]Five-tier rate system controversial
[04:14.56]Germany's export credit insurance system came of age on July 1 with the abandonment of a 50-year-old system of uniform premium rates.
[04:24.49]A five-tier system was introduced which effectively reduced the former standard premium by two-thirds for cover on deals with lowest-risk countries,
[04:34.94]and doubled it for companies doing business with the world's economic laggards.
[04:39.51]While the government saw the change as an occasion for celebration,
[04:43.43]industry and the opposition remained as resolutely glum as they had through more than two years of consultation.
[04:51.06]Certain media commentators were downright aggressive.
[04:54.74]One leading newspaper,for example,described the move as an insurance policy for the Bonn government paid for by exporters.
[05:03.49]East German politicians complained that because of the heavier premiums for deals with their manufacturers' traditional Russian and other east bloc countries,
[05:13.68]export credit insurance would now exclusively benefit west German companies.
[05:18.82]Bonn was insistent that the changes should go through.
[05:22.17]Germany was behind the times,it said,being the only major exporter to apply uniform tariffs.
[05:28.67]It also had international agreements to honour:subsidy rules in the General Agreement on Tariffs and Trade required export credit insurance schemes to be independent and self-supporting.
[05:41.68]The old system was increasingly failing to meet these criteria.
[05:45.70]At the same time,the Bonn administration was under strict orders from the Bundesbank to cut state spending wherever possible.
[05:53.91]Mounting deficits in the state-sponsored Hermes insurance programme,administered by the Allianz group,were a clear target.
[06:02.14]The federal budget subsidised the Hermes programme to the tune of a record DM5.1bn last year,
[06:10.10]and a further escalation to DM7.5bn(regardless of the impact of the new premiums) has already been earmarked for the current year.
[06:19.74]As Gunter Rexrodt,economics minister,pointed out recently,
[06:23.71]DM4.5bn of the 1993 Hermes deficit was due to outstanding debts from the former Soviet Union.
[06:32.18]While he failed to mention that countries such as Russia and the Ukraine-still important outlets for east Germany's struggling industry-had been placed in the worst risk grade,
[06:43.33]he made much of cheaper premiums for other countries where west German exporters are hoping to find new growth.
[06:50.64]Singapore,Taiwan and South Korea are now in the top rank-"countries without special risks".
[06:57.93]For export credit insurance purposes,they are now on equal terms with large industrialised nations for which the services of Hermes play no role.
[07:07.55]Premiums on deals with China and the Czech Republic are reduced by a third.
[07:12.80]Mr Rexrodt insisted that higher premiums for Russia and former Soviet Union states offered no disadvantages to German exporters,
[07:21.89]since competing nations had long since been paying more for cover there.
[07:26.90]While the minister side-stepped the implications for east Germany,
[07:31.00]his ministry officials had earlier ridden rough-shod over protests.
[07:35.00]At a March meeting in the Baltic state of Mecklenburg-Vorpommern,
[07:39.31]regional leaders protested that Hermes operated exclusively on behalf of west German interests.
[07:45.55]A Hermes representative was able to demonstrate the charge as untrue with figures which at the same time,
[07:52.32]which at the same time starkly illustrated just how important the system was to the region's economy.
[07:57.70]While Hermes covered 6 per cent at most of all German exports,the proportion rose to 50 per cent in the former GDR. |