Back Matter

Back Matter

Jian-Ye Wang, Yo Kikuchi, Sidhartha Choudhury, and Mario Mansilla
Published Date:
July 2005
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The quantitative analysis of this study is based on three statistical sources: Berne Union quarterly reports; Creditor Statistics on External Debt, published jointly by the Organization for Economic Cooperation and Development (OECD), the Bank for International Settlements (BIS), the International Monetary Fund, and the World Bank; and annual reports of export credit agencies (ECAs). A survey on export credit agencies conducted by IMF staff also provided useful information that supplements the data from other sources for analyzing the current situation, trends, and challenges that ECAs are facing in the market for trade financing. However, these databases rely ultimately on the individual agencies for data, and each agency uses definitions and concepts that are different, sometimes in important ways. Difficulties also arise from the increasingly complex linkages among various channels of official bilateral financing with direct credits or insurance for credits funded by the private sector. This study has not attempted to reconcile data from different sources, but it has used the different data in complementary fashion to analyze financing supported by ECAs.

The Berne Union

As part of its efforts to exchange information and expertise among members, the Berne Union conducts a quarterly survey among member agencies about their trade financing operations. The survey compiles quarterly data on trade financing operations from each member agency, including data for more than 60 developing countries and economies in transition (see Appendix Tables A1.1 and A1.2). Those data have been provided to IMF staff on a confidential basis for their use in analyzing various aggregates for individual debtor countries.

Table A1.1.New Export Credit Commitments by Type of Recipient Country, 1988–2003(In billions of U.S. dollars)
Industrial CountriesEmerging MarketsLow-Income CountriesTotal
Source: IMF staff estimates based on Berne Union data.Note: Table includes all maturities, not including refinanced and rescheduled amounts.

Preliminary estimates based on quarterly reports from agencies.

Source: IMF staff estimates based on Berne Union data.Note: Table includes all maturities, not including refinanced and rescheduled amounts.

Preliminary estimates based on quarterly reports from agencies.

Table A1.2.Export Credit Commitments Outstanding, 1988–2003(In billions of U.S. dollars)
Short-TermMedium-and Long-TermArrears and Unrecovered ClaimsTotal
Source: IMF staff estimates based on Berne Union data.

Preliminary estimates based on quarterly reports from agencies.

Source: IMF staff estimates based on Berne Union data.

Preliminary estimates based on quarterly reports from agencies.

The Berne Union data series is reported in the way most agencies actually maintain their books, which includes outstanding commitments, outstanding offers, payments due, arrears, refinanced and rescheduled amounts, unrecovered and not-written-off claims, and new short-, medium-, and long-term commitments. The concept of “new commitments” encompasses insured principal and, in most cases, interest on undisbursed as well as disbursed credits. Investment insurance includes the amount invested in the host country while excluding interest and reinvested earnings and interest on insured loans.

Some of the limitations of the Berne Union database are related to data comparability. Berne Union data may not be readily comparable with other types of debt statistics because they may not accurately reflect trends in new disbursements. In other cases, the database includes insurance for certain transactions that are not exports, in particular insurance against exchange rate movements or insurance of preshipment risks that do not involve export credits. Moreover, the amount of new commitments is subject to sizable changes from one quarter to another as a result of new information on the funding of large projects.

The OECD/BIS/IMF/World Bank

The OECD compiles its information on trade credit from reports made by export credit agencies in its member countries. The OECD publishes data on export credits and other financial flows in Creditor Statistics on External Debt, jointly with the BIS, the IMF, and the World Bank. The OECD export credit secretariat also compiles regular reports on stocks and on new flows of commitments of officially supported export credits with maturities of more than two years. This information is publicly disseminated via the OECD website.

Trade credit comprises official export credits, which are medium and long term by nature, and officially guaranteed or insured suppliers’ credits. Arrears and officially guaranteed rescheduled amounts on officially guaranteed or insured financial credits are included. These data consist of credit extended to both the public and private sectors in the borrowing country. For most countries, trade credits with an original maturity of one year or less include funds awaiting disbursement. Data can change significantly between different issues and publications due to delays in reporting agencies’ financing operations.

Survey of ECA Activity

A total of 27 ECAs (mostly Berne Union members) answered the questionnaire prepared by IMF staff from late 2003 to early 2004. Qualitative information includes an assessment of recent trends in the business, main recent regulatory and institutional changes, views on private sector competition, new instruments and modalities of financing, participation in public-private partnership structures, developments in risk management and control systems, practice and policies on reinsurance, and country risk assessment. Quantitative questions were aimed at determining the composition of new commitments, pricing, reinsurance, and product information. Responses to the questionnaire were useful to verify trends and new developments in official export credit financing and in assessing private sector participation in the trade financing market. Quantitative information helped complement and elucidate trends already observed in the Berne Union and OECD databases.

ECA Annual Reports

This study has relied on other publications for information on trade financing, in particular publications of the OECD, the Multilateral Investment Guarantee Agency of the World Bank Group, and multilateral development banks such as the World Bank, as well as annual reports of ECAs through their own websites. The latter include, in particular, COFACE of France, the U.K. Export Credits Guarantee Department, Euler-Hermes of Germany, the U.S. Export-Import Bank, the Export-Import Bank of China, the Export-Import Bank of India, and other official and private credit insurers (e.g., American International Group, Sovereign, and Zurich).

International Trade Data

International trade data on the direction of trade were obtained from the Commodity Trade Database (COMTRADE), which is maintained by the United Nations Statistical Division through the World Integrated Trade Solutions system. COMTRADE keeps information on more than 130 countries on exports and imports by commodity and partner country. The concept of “capital goods exports” used in this study corresponds to the COMTRADE data series on exports of machinery and transport equipment goods.

Countries Included in the Calculation of Figures 2.4 and 2.5

OECD countries: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Hungary, Italy, Japan, Korea, Luxembourg, Netherlands, Norway, Poland, Portugal, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States.

Non-OECD countries/regions: Argentina, Brazil, China, Hong Kong SAR, India, Indonesia, Israel, Malaysia, Singapore, South Africa, Sri Lanka, Zimbabwe.

Table A2.1.Mandate and Scope of Operations of Selected Export Credit Agencies (ECAs)(As of year-end 2003)
OECD ECAsEmerging Market ECAs
COFACE (France)ECGD (UK)EDC (Canada)FINNVERA (Finland)HERMES (Germany)JBIC (Japan)SACE (Italy)U.S. EximExim (China)Exim (India)
OwnershipPrivate corporation with government accountDepartment of governmentPublic agencyPublic agencyPrivate corporation with government accountPublic agencyPublic agencyPublic agencyPublic agencyPublic agency
Mandate and Objectives
Promoting national exportsYesYesYesYesYesYesYesYesYesYes
Other public policy rolesTake into account “the Government’s international policies”“Provide risk finance to supplement the market”Eligibility “in terms of foreign policy and development aid”Provide assistance to developing countries and contribute to the stability of the international financial orderAct as “shock absorber” during times of economic crisis and financial market contractionsImplement state policy in trade and finance; enhance sino-foreign economic cooperationCoordinate work of institutions engaged in financing of exports and imports
Scope of Operations
Direct lendingYesYesYesYesYesYes
Sources: Organization for Economic Cooperation and Development and websites of export credit agencies.

Reinsurance with other export credit agencies known as “one-stop shops” is not included.

Under own corporate account.

Sources: Organization for Economic Cooperation and Development and websites of export credit agencies.

Reinsurance with other export credit agencies known as “one-stop shops” is not included.

Under own corporate account.


The Organization for Economic Development and Cooperation’s Arrangement on Guidelines for Officially Supported Export Credits was established in 1978. Its main purpose is to provide a framework for the orderly use of officially supported export credits. The Arrangement encourages competition among exporters based on the quality and price of goods and services being exported rather than on the most favorable officially supported financial terms. The Arrangement is a gentlemen’s agreement among its participants; it is not an OECD act. Most OECD countries are represented in the participants, and membership is by invitation of current participants.2

The Arrangement applies to officially supported export credits with repayment terms of two years or more. Official support may be provided in different forms: export credit guarantee or insurance (pure cover), financing support (direct credit, or direct financing and refinancing, and interest rate support), or any combination of the above. The OECD Arrangement also applies to tied aid. Military equipment and agricultural commodities are excluded from the application of the Arrangement, and special guidelines (Sector Understandings) apply to civil aircraft, nuclear power plants, and ships.

The OECD Arrangement has evolved over time. With the aim of eliminating interest rate subsidies, consensus up until the mid-1990s placed limitations on cash down payments (minimum 15 percent of export contract value), the repayment period (maximum 5 to 10 years, depending on per capita income of borrowing countries), and interest rates that benefit from official financing support (minimum rates or currency-specific commercial interest reference rates). There were also restrictions on the provision of tied aid.3 Since then, the Arrangement has been broadened to include premiums for credit risk and project financing. Export credit agencies in OECD member countries also adopted common approaches on environmental impact (see below). The most recent modification to the text of the Arrangement, intended to improve consistency with World Trade Organization rules and to enhance transparency for nonparticipants, was agreed upon in late 2003 and became effective in January 2004.

Minimum Risk Premium

While the minimum interest rates or commercial interest reference rates (based on the yields of government bonds in the secondary markets) help to eliminate interest rate subsidies, they provide no guidance on premiums charged to cover nonpayment and other risks. In April 1999, after four years of intensive work by the Working Group of Experts, headed by Pierre Knaepen, a new discipline on minimum risk premiums, known as the Knaepen Package, came into force. Under this new consensus, participants are required to charge risk premiums, in addition to the interest charge, to cover sovereign and country credit risks, regardless of whether the buyer or borrower is a private or public entity. The minimum premium rate (MPR) is based on a set of agreed-upon principles. Key factors determining the MPR include country risk classification, risk horizon, the extent of cover, and applied risk mitigating technique.

Country risk classification is divided into eight categories ranging from negligible risk to the most risky. Determination of the classification takes into account both quantitative and qualitative assessment of a borrowing country’s financial and economic developments as well as its payment records. Risk classification is closely monitored and subject to periodic review (at least once a year). This risk premium discipline does not apply to official export credits for ships, nor to large aircraft.

Flexibility for Project Finance

Increasing demand for project financing, including for private infrastructure projects, has led to the adoption of special guidelines to allow flexibility in the application of the OECD Arrangement for such transactions.4 For instance, the requirements of a maximum repayment period of 10 years, payment in semiannual equal installments, and a maximum grace period of six months may be too restrictive to accommodate project financing that relies on the cash flows of the projects for debt servicing. In view of this, participants agreed to introduce flexibility with regard to a number of features of the Arrangement, including the timing of the first repayment, the repayment profile, and the maximum repayment period. These understandings went into effect in September 1998 for an initial trial period of three years; they have since been extended several times.

Common Environmental Approach

While in the past most export credit agencies had their own environmental guidelines, harmonization and stronger common approaches would help protect the environment and foster fair competition among export credit providers. Following successive early discussions, OECD members agreed in December 2003 to strengthen their common approaches for identifying and evaluating the environmental impact of infrastructure projects supported by their governments’ export credit agencies.5 The agreement takes the form of an OECD Recommendation, which is an official OECD action. Key elements of the agreement include the following:

  • Projects should, in all cases, comply with the environmental standards of the host country. When the relevant international standards (those of the World Bank, and, where applicable, regional multilateral development banks) are more stringent, these standards should be applied.

  • Projects are classified into three categories based on their potential environmental impact and subject to different monitoring and reporting requirements. For projects that have a significant adverse environmental impact, an environmental impact assessment is required.

  • Participating export credit agencies will seek to make environmental information, particularly environmental impact assessments, publicly available 30 calendar days before final commitment.

Anticorruption and Export Credits

In December 2000, the members of the OECD Working Party on Export Credits and Credit Guarantees adopted the action statement on bribery. The statement calls for appropriate measures to deter bribery before official support for export credit is provided. Specific measures include, among other things, informing applicants about the legal consequences of bribery and denying claim payment or seeking the return of funds should bribery be discovered.6

Table A4.1.ECA Financing for Low-Income Countries
IssuesIndustrial Countries’ Official ECAsPrivate Insurers with Government Account in Medium- and Long-Term Markets
ECA 1ECA 2ECA 3ECA 4ECA 5Insurer 1Insurer 2
Lending/cover for low-income countriesLimited. Creditworthiness of many countries (e.g., HIPCs) is not good; debt ceilings in the IMF program are a constraintLimited and constrained by debt ceilings in IMF-supported programs; prospects for private sector involvement small; likely to offer ST credit in the foreseeable futureLending is suspended when a country receives debt relief because it impacts the portfolio of the agencyLittle business. Often constrained by IMF-supported programs; private sector creditworthiness not adequateBusiness has decreased by almost 50 percent, although it has expanded in selected countries; no significant business opportunitiesLimited. Often constrained by debt ceilings in IMF programs
Support to private sector versus sovereign entitiesDepends on creditworthiness of sectors and country circumstancesPrivate sector more likely to receive support, but sovereign business also consideredDepends on sectoral risks; support in several low-income countries is only offered to private sectorAll depends on creditworthiness of each sectorDecided on a case-by-case basis, though it considers sovereign risk superiorIn many cases the cover policy for public buyers is more restrictive than for private buyersCover for low-income countries is limited to private sector
Cover of post-completion-point HIPCsNo MLT cover is available (with one exception)Cover was never removed for country, only for sovereign entitiesNo for MLT, but there is ST lending/insuranceNo. Insufficient creditworthiness and moral hazardNo. HIPCs are still off-cover (with one exception)Provides cover only for selected ST business for private buyersMLT available only in small amounts and mostly restricted to the private sector
Source: Based on a survey of Berne Union members conducted in 2004 (see Appendix I).Note: The insurers presented in this table are among the largest in the sample. MLT: medium- and long-term; ST: short-term; HIPCs: highly indebted poor countries.
Source: Based on a survey of Berne Union members conducted in 2004 (see Appendix I).Note: The insurers presented in this table are among the largest in the sample. MLT: medium- and long-term; ST: short-term; HIPCs: highly indebted poor countries.
Table A4.2.ECA Response to Countries in Financial Crisis
IssuesIndustrial Countries’ Official ECAsPrivate Insurers with Government Account in Medium- and Long-Term Markets
ECA 1ECA 2ECA 3ECA 4ECA 5Insurer 1Insurer 2
Immediate response to recent crises:
Increased exposureNoNoYesNoNoNo
Reduced exposureYesYes, but from ongoing efforts to strengthen risk assessment and managementNot significantlyYes, but it was demand-driven, not a result of a deliberate policyOnly in one case was there a significant reductionYesYes, especially MLT, partly from reduced demand; ST exposure was also reduced
Went temporarily off coverYes, for hardest-hit countriesYes, but only in one caseYes, but only in one caseYes, especially for MLT businessYes, on MLT cover for countries most severely affected
Maturities were shortenedNoNoNoNo
IncreasedYes, risk premiums rose sharply for crisis countriesNoYes, in line with OECD guidelines for sovereign risk; private risk premiums increased with country downgradesYes, in line with OECD guidelinesPremiums charged continued following OECD guidelines; they increased in some cases
Other responsesGenerally restricts or suspends cover if a country is facing difficultiesCredit renewals and transactions in pipeline are more carefully scrutinizedIn line with current policy, suspended lending to countries in arrearsTried to maintain operations in countries that are strategic for exportersContinued to provide ST financing but subject to stricter examination of buyer’s creditworthiness
Crises led to long-term change in portfolio strategy or risk assessmentYes, a more proactive risk management strategy was adoptedNoRisk assessment and management were strengthenedNoNo change in strategy
Source: Based on a survey of Berne Union members conducted in 2004 (see Appendix I).Note: The insurers presented in this table are among the largest in the sample. MLT: medium- and long-term; ST: short-term; HIPCs: highly indebted poor countries; OECD: Organization for Economic Cooperation and Development.
Source: Based on a survey of Berne Union members conducted in 2004 (see Appendix I).Note: The insurers presented in this table are among the largest in the sample. MLT: medium- and long-term; ST: short-term; HIPCs: highly indebted poor countries; OECD: Organization for Economic Cooperation and Development.

Aircraft financing accounted for an average of 38 percent of new commiments by the U.S. Export-Import Bank during 1999–2003, compared with an average of 13 percent for the first half of the 1990s. Similarly, major European export credit agencies also allocated a significant share of export credits for aircraft sales, and in some cases military exports. Most export credit agencies do not report transactions and export credits for military goods.

Figure A5.1.Aircraft Financing Supported by Selected Export Credit Agencies

(In percent)

Sources: U.S. Ex-Im Bank Annual Reports; U.K. Export Credits Guarantee Department Annual Reviews; and Euler-Hermes 2002 Annual Report.


Export credit agencies have strengthened their risk management in recent years by enhancing risk analysis and control and by adopting new tools and methods in light of developments in the international financial industry. These techniques allow credit insurers to measure and control their exposure to a wide range of risks that are intrinsic to their activities. Generally, export credit insurers are exposed to two types of risks: those related to their underwriting activities per se, and risks derived from the fluctuation of key exogenous variables (e.g., interest rates, exchange rates). Accordingly, risk management aims at avoiding underwriting and financial losses with reasonable statistical confidence levels based on capital level, tolerance to risk exposure, and targeted credit rating.1 The tool kit available for risk mitigation includes risk classification systems, portfolio diversification instruments (including reinsurance; see Appendix VIII), and asset liability management instruments (including hedging and value-at-risk techniques).

Country Risk Classification

Export credit insurers use risk classification systems to rank borrowing countries in terms of their debt repayment capacity. The Knaepen Package provided export credit agencies with a common system of country risk classification that can be used to calculate minimum risk premiums. All participants in the Organization for Economic Cooperation and Development’s Arrangement on Guidelines for Officially Supported Export Credits have agreed to such a common system to price official support, taking into account the associated schedule of minimum risk premiums.2 However, to further enhance their risk assessment system, several agencies have adopted different country risk classification systems in order to reflect their own risk perception and sometimes to meet local legal requirements. For example, in the United States, the Interagency Credit Risk Assessment System determines the country classification and the level of country risk associated with transactions evaluated by the U.S. Export-Import Bank. This system, which is applied uniformly across various U.S. government agencies, has 11 sovereign risk categories and 9 nonsovereign risk categories. The Office of Management and Budget is responsible for assigning a risk premium to each category to reflect the corresponding expected losses. Similarly, the risk assessment system of the Japan Bank for International Cooperation (JBIC), the Japanese export credit agency, comprises 10 categories of sovereign risk and 14 of nonsovereign risk. Those ratings match the Japanese financial supervisory agency’s inspection manual and are used not only to classify the JBIC’s new lending operations but also to examine overall asset quality and the corresponding loan loss provisions. However, as OECD governments, both the United States and Japan must not undercut the minimum premium rates established for the OECD Arrangement.

The factors commonly used to formulate country ratings are very similar across ECAs. These include macroeconomic indicators; external debt and debt service indicators; records of payment and arrears (including to other ECAs); medium- and long-term economic projections; political, social, and geographic constraints; and performance under programs supported by the IMF and the multilateral development banks.

Reflecting the experience of the recent emerging market financial crises, increasing attention has also been paid to banking sector analysis to assess factors that could lead to sudden capital outflows. The sovereign ratings by international credit rating agencies such as Moody’s and Standard and Poor’s also play an important role as benchmarks in the credit classification process.

Country risk classification can be used to formulate minimum risk premiums, estimate necessary provisioning, and determine maximum coverage ratios (ceilings). Some ECAs set only total exposure ceilings,3 while others set country-specific ceilings. In the latter cases, if the existing exposure is approaching the ceiling allocated to a certain country, ECAs may (i) reduce their percentage of cover for new transactions in that country, (ii) reallocate unused exposure ceilings from other countries with similar risk profiles, or (iii) secure reinsurance from other ECAs and reinsurers.

Nonsovereign Risk Classification

Traditionally, most official ECA operations involved publicly owned or sponsored projects. However, since the 1990s, ECAs have expanded their role in the financing of private sector projects.4 As a result, some ECAs have developed well-structured nonsovereign risk classification systems to complement existing country risk classification. In addition to the traditional financial analysis indicators, the assessment of nonsovereign risk includes analysis of the banking system, legal system, business climate, and so forth. Normally, the credit ratings of sovereign debtors are higher than those of the private sector (this is the so-called sovereign ceiling), but there are exceptions where private entities with foreign exchange earning capacity are assigned credit ratings at par or higher than that of the sovereign.

Portfolio Diversification and Asset Liability Management

Generally, diversification of the credit insurance portfolio helps to reduce the possibility that a default by a particular debtor, or a shock affecting a particular industry or geographic region, will generate disproportionately large overall losses in a particular period of time. Portfolio diversification also allows ECAs to maintain the financial flexibility to adjust business strategies if necessary.5 In this regard, ECAs periodically set short- and long-term exposure limits and credit ceilings by customer, sector, and country in the context of the overall business strategy and on the basis of their entire portfolio risk analysis (including value-at-risk techniques; see below). If necessary, risk managers can use reinsurance and coinsurance to rebalance their portfolio, while keeping a presence in target markets or sectors.

More general asset liability management policies aim at insulating the insurers’ capital from adverse shocks typically related to interest and exchange rates. Hedging techniques help balance asset liability gaps arising from the mismatch of currencies (e.g., domestic versus foreign currencies) and interest rates (e.g., fixed versus variable rates). In addition, the term structure of assets and liabilities needs to be reasonably matched to keep a sound liquidity position while preserving the profitability targets.

Some insurers monitor their overall financial risk using value-at-risk (VaR) techniques. Risk managers apply stress tests (for instance, based on significant fluctuations of interest and/or exchange rates) to their asset portfolios to calculate the expected maximum loss for a predetermined period at a certain confidence level (i.e., the VaR). Generally, risk management policies set the maximum levels of acceptable VaR as a function of capital or total asset size. Risk management requires a permanent evaluation of the asset portfolio against those limits, leading to portfolio rebalancing if necessary.

Other Risk Management Tools

Export credit insurers have developed innovative financial structures, sometimes in partnership with other insurers, that permit them to remain competitive while helping to mitigate risk within portfolio diversification guidelines. For instance, in the field of limited recourse financing (also called project financing), increased demand has required ECAs to develop the capacity to mitigate the risks associated with this type of financing. Under project finance arrangements, debt repayments depend on the project’s capacity to generate revenues. Therefore, the key elements in this type of financing are the security package, involving existing or future assets, and the analysis of implementation risks. A failure in project implementation could have severe adverse financial consequences for ECAs.6 Some ECAs (for example, the JBIC in the late 1980s and the U.S. Export-Import Bank in the late 1990s) have established specialized project finance units in charge of the appraisal and financial structuring of projects. At the same time, some business lines continue to require special consideration. For instance, in the case of aircraft financing, which is a major area of operations for medium- and long-term ECA financing, most agencies have already introduced asset-backed, secured operations to better cope with the changing nature of risks and the evolving demand in the airline industry. Some of these agencies have even developed structures to securitize these asset-backed financings to access additional liquidity.

Cofinancing structures have also been used by some ECAs for projects that entail risks that are beyond their traditional expertise. For instance, cofinancing with multilateral development banks helps ECAs assess their projects’ environmental and social aspects, based on the analysis undertaken by the multilateral development bank concerned, and mitigate the related risks as well as implementation and credit risks.

Table A7.1.Strengths and Constraints of Public and Private Trade Finance Providers
Official Export Credit Agencies (ECAs)Multilateral Development BanksPrivate Sector
  • Promote national exports and international investment

  • Other public policy goals

Facilitate economic development in developing countriesMake a profit
AllegiancesNational governments and taxpayersInternational communityShareholders
  • Access to public funding

  • Sovereign credit rating

  • No need to pay dividends

  • Ability to prevent losses and secure recoveries

  • Preferred creditor status

  • Top-notch credit rating

  • No need to pay dividends

Flexibility and efficiency in operations
  • Break even over the medium term

  • Might compete with the private sector (most ECAs)

  • Loss in expertise in short-term business (most ECAs)

  • Possible impact on rating and cost of capital by more use of B-loan structure

  • Might compete with the private sector (most ECAs)

  • Hard budget constraint; cannot suffer sustained loss

  • Limited capacity in certain segments of the market (e.g., in terms of the type, amount, and period of export credits)


Reinsurance is a practice by which one insurer (reinsured party) transfers risk to another (reinsurer). In exchange for unloading its risk, the reinsured party pays a premium to the reinsurer. Export credit insurers use reinsurance as an instrument to diversify their portfolios (e.g., in terms of country risk, sectoral allocation, or maturity profile), overcome exposure limits, and improve their ability to participate in transactions that otherwise might not be possible to underwrite (such as certain transactions or long-term exposure to high-risk markets). A recent survey of Berne Union members indicates that, on average, official export credit agencies reinsured more than 70 percent of their short-term business. Some official ECAs act as a reinsurer, providing reinsurance to other credit insurers (Table A8.1).

Table A8.1.Reinsurance of Short-Term Business by Official Export Credit Agencies (ECAs)
InsurerPercent of Short-Term Business ReinsuredPercent of Public ECAs that Reinsure Private Insurers
Official Insurers17122
Private Insurers278
Source: Berne Union.Note: Based on a survey of Berne Union members in 2003–04.

Includes 27 respondent institutions.

Includes 7 respondent institutions.

Source: Berne Union.Note: Based on a survey of Berne Union members in 2003–04.

Includes 27 respondent institutions.

Includes 7 respondent institutions.

There are several modalities of reinsurance: (i) facultative reinsurance associated with some specific risks on a given transaction; (ii) a framework reinsurance agreement that enables one insurer to cover an entire project while allowing partner ECAs to reinsure parts of the transaction (typically for the risks associated with their own countries); and (iii) quota share reinsurance, a blanket reinsurance policy that covers a fixed portion of the total portfolio of the reinsured party.

There are also nonproportional policies under which the reinsurer will cover losses, up to a limit, above a certain threshold of agreed-upon portfolios. In some cases, reinsurance may be provided implicitly by a government or public agency (on the basis of the agency’s bylaws). Finally, credit risk derivatives are financial instruments that can be used to transfer the risk of insurance transactions to third parties.

Role of Private Reinsurers

Private reinsurers have shown increasing appetite for risks associated with export credits and foreign direct investment, including political risk—the risk of expropriation, currency inconvertibility, and war and civil disturbances, among other events. These reinsurers now have a large capacity (see Figure A8.1), and their involvement has been particularly important for credit insurers with large short-term business portfolios. Partnership with commercial reinsurers also allows ECAs to increase their capacity to support medium- and long-term export financing.

Figure A8.1.Capital and Reserves of Top Ten Reinsurers, 2002–03

(In billions of U.S. dollars)

Source: Standard and Poor’s.

Since the late 1990s, the private reinsurance industry has experienced a process of restructuring and consolidation, in part as a consequence of relatively low profitability accentuated by the effects of the September 11, 2001, terrorist attacks and by recent financial crises in emerging markets. Since then, some capacity has been added to the reinsurance industry through the injection of additional capital, but appetite for export credit risks is uneven across countries, and long-term credit risks are covered on a limited basis. To the extent that portfolio growth of credit insurers is supported by their ability to obtain total or partial reinsurance, constraints in the reinsurance market could limit credit insurers’ capacity to provide trade financing, especially to relatively risky markets.

GLOSSARY OF TERMSBerne Union (International Union of Credit and Investment Insurers).

Founded in 1934, this organization now has among its members more than 50 of the largest export credit and/or investment insurers from both developed and developing countries. Institutions, not their governments, are members. The Union works for the acceptance of sound principles of export credit and investment insurance and the exchange of information and experience. The secretariat is in London, and members hold two general meetings each year as well as seminars and workshops for specialists.

Buyers’ credit.

Financial arrangement in which a bank or financial institution or an export credit agency in the exporting country extends a loan directly to a foreign buyer or to a bank in the importing country to finance the purchase of goods and services from the exporting country.


The largest amount of insurance an insurer or a reinsurer is willing and able to underwrite, including the amount they retain and the amounts for which they automatically bind their reinsurers. Capacity may apply to a single risk, a program, a line of business, or an entire book of business.

Claims payments.

Payments made by an export credit insurer, after the claims-waiting period, on insured or guaranteed loans when the original borrower or borrowing country guarantor fails to pay.

Claims-waiting period.

The period that exporters or banks must wait after arrears occur and before the agency will pay on the corresponding claim.


Normally joint (but sometimes parallel) insurance on a project or contract involving two or more insurers, which could be official export credit agencies and/or private insurers.

Commercial interest reference rates (CIRR).

A set of currency-specific interest rates for major OECD countries. These rates are determined monthly based on the secondary market yield on government bonds.

Commercial risk.

Refers primarily to the risk of nonpayment by a buyer or financial institution due to default, insolvency or bankruptcy, or failure or unwillingness to take delivery of the goods (i.e., repudiation). Usually excluded are cases where there are disputes between exporter and importer about product quality, delivery dates, performance, and the like. Claims will generally not be considered until these disputes are resolved. Also usually excluded are commercial risks on sales from exporters in one country to their subsidiaries in other countries.


The amount under cover for a specific policy for which a premium has been paid or invoiced and is not yet due for payment by debtors.

Confirmed letter of credit.

See “letter of credit.”

Country limit.

A quantitative limit on exposure set by many export credit insurers and international banks to monitor and control their total commitments in individual countries. Country limits apply usually to medium- and long-term business and only rarely include short-term business. They can have various forms, including annual maturities limits and contract limits.


The insurance provided by an export credit agency. Thus, for example, if some insurance facilities are available from such an agency for country X, that agency is “on cover” for that country. Conversely, where no insurance facilities are available, the agency is said to be “off cover.” An agency’s underwriting policy on a particular buying country is usually referred to as its cover policy for that country.

Credit insurance.

The principal product of an export credit insurer. However, the term can include both export credit insurance and domestic credit insurance (i.e., insurance on sales within a country). Credit insurance protects the insured party (normally the seller), in exchange for a premium, against a range of risks that result in nonpayment by the buyer. In export credit cover, both commercial and political risks are normally involved.

Credit period.

The period from the time of delivery or acceptance of goods (for short-term business) or from the commissioning of the project (in project financing) until repayment is complete. Maximum credit periods are set for repayment periods. The starting point of credit for short-term business is set by the Berne Union agreements, and for medium- and long-term business by the Berne Union and the OECD Arrangement on Guidelines for Officially Supported Export Credits.

Export credit, export credit insurance.

The main type of facility offered by an export credit agency. The term describes a range of facilities and can have different meanings in different contexts. Strictly speaking, export credit refers to the credit extended by exporters to importers (supplier credit) or the medium- and long-term loans used to finance projects and capital goods exports (buyer credit). It includes credit extended both during the period before goods are shipped or projects are completed (the preshipment period or precredit period) and the period after delivery or acceptance of the goods or completion of the project (the postshipment period or credit period).

Export credit agency.

An institution providing export credit insurance, guarantee, and, in some cases, loan facilities. Such an institution is government-owned or controlled or, if it is a private company, operated on a government account.

Export-import bank (eximbank).

A type of export credit agency that normally not only issues insurance but also lends directly. Some eximbanks also act as borrowers for import finance. There is no single model, and an eximbank’s organization, status, and functions usually differ from country to country.


The total commitment of an export credit insurer with respect to a specific debtor or debtor country plus overdue payments, including unrecovered claims and rescheduled debts as well as debt service payments not yet due.


A trade finance mechanism whereby an exporter sells receivables at a discount to a company (factor). Normally, after the factor has purchased a receivable, the importer or buyer pays the factor directly. The factors may or may not have recourse to the exporter in the event of nonpayment or delayed payment by the buyer or importer.

Facultative reinsurance.

A type of framework reinsurance agreement under which the reinsurer retains the “faculty” to accept or reject each risk submitted by the reinsured party. It is mainly used by a reinsured party to reinsure parts of the risks or all the risks for which the party is unable to find reinsurance cover using other existing arrangements.


An export finance mechanism involving the purchase at a discount of promissory notes or bills of exchange by a forfaitor. The payment instruments are normally guaranteed by a bank. The discount reflects financing costs until the payment due date and the risks involved.

Government account.

Business that an export credit insurer underwrites on behalf of the insurer’s home government. Typically, the premium (less any administrative charges) of government account business is passed on to the government in some way and the government funds claims payments.


Insurance policies of various kinds are typically issued with respect to a range of risks against payment of a premium. For export credit insurance, the risks could embrace both political and commercial causes of loss, which may arise in the precredit period (before shipment) or during the credit period (after shipment). Policies may be used by exporters (supplier credit) or by banks engaged in financing trade (buyer credit). For investment insurance, the risks are restricted to political risks. In both export credit and investment insurance, the insurance is against specified risks or classes of risk and is therefore conditional, although individual policies may be loosely referred to as guarantees.

Letter of credit.

A document issued by a bank on behalf of one of its clients guaranteeing payment when all the conditions stated in the letter have been met. Letters of credit can take a variety of forms, but essentially they are a means of payment between an importer and exporter via their banks. The importer is sometimes called the opener, and the importer’s bank the opening bank (or sometimes the issuing bank). The bank in the exporter’s country is called the advising bank, and the exporter is called the beneficiary. A letter of credit may be revocable, which means that it can be canceled or modified by the importer or the importer’s bank without prior approval from the beneficiary. Letters of credit can also be confirmed. This is done either on an open confirmation basis, in which case the issuing bank is aware of the confirmation, or on a silent confirmation basis, in which case the issuing bank and the importer or buyer may not be aware of the confirmation. Confirmed letters of credit reduce certain risks for exporters, such as the risk that the issuing bank may fail or be unable to transfer foreign exchange. Letters of credit are subject to widely accepted practices and procedures under the International Chamber of Commerce’s Uniform Customs and Practices for Documentary Credits.

Long-term business.

Traditionally, insurance or financing applied over a period of more than five years. But there is no generally accepted or precise division between long- and medium-term business.

Medium-term business or credit.

Conventionally, business with a credit period of between one and five years. However, under the OECD Arrangement, medium-term business is that with a credit period of two to five years. There are no universally accepted or generally applied divisions between short- and medium-term business, or between medium- and long-term business.

National interest account.

Business for which an export credit agency provides cover, even if it does not meet the agency’s normal underwriting criteria and standards, because the business is deemed by the agency’s government or guardian authority to be in the broader interest of the agency’s home country.

Official creditor.

A public sector lender or insurer. Some official creditors, such as international financial institutions, are multinational. Others are bilateral—for example, individual creditor governments and their official agencies, such as central banks and export credit agencies when they are conducting business on a government account.

Officially supported export credit.

An export credit supported (usually insured) by an export credit agency on a government account, rather than on its own account. The credit may be a supplier credit or a buyer credit. For medium- and long-term business, the extent of permissible official support is set by the OECD Arrangement (normally limited to 85 percent of the exported value, plus, where appropriate, the maximum permissible share of local costs, normally 15 percent of the exported value).

Paris Club.

An informal group of creditor governments whose representatives have met regularly in Paris since 1956 to reschedule bilateral debts at the request of debtor countries. The French Treasury houses the group’s secretariat. The Paris Club works on a consensus basis. It has no fixed membership and is open to all official creditors.

Political risk.

The risk of nonpayment on an export contract or project as a result of action by an importer’s or buyer’s host government. Such action may include intervention to prevent the transfer of payments (see “transfer risk”), cancellation of a license, or acts of war or civil war. Nonpayment by sovereign buyers is also a political risk.

Project finance.

Financing provided on the basis of the cash flow and viability of a project as the security for repayment rather than the general creditworthiness or financial strength of the buyer (or borrower or guarantor).


Amounts collected from a debtor by an export credit agency, an exporter, or a debt collector after the export credit agency has paid a claim consequent to the debtor’s nonpayment.


The practice whereby an insurer passes on to another insurer (called a reinsurer) part of the risk (and a portion of the premium income) of a policy it has written. Export credit agencies can be involved in reinsurance both as reinsurers and as reinsured parties. Export credit agencies receive reinsurance from their governments or purchase it in the private reinsurance market. There are several varieties of reinsurance (e.g., facultative, quota share, excess loss), but the basic principle is the same. Some export credit agencies (e.g., in the United Kingdom) are beginning to provide reinsurance to some private insurers against political risks in some countries.


The use of facilities such as loans or guarantees to produce assets that are sold to investors in the capital markets.

Short-term business or credit.

Transactions involving a maximum credit period, usually of 180 days, although under some definitions it can extend to 360 days and, in exceptional cases, to two years. For purposes of the OECD Arrangement, the medium term begins (and, by implication, the short term ends) at two years. Short-term business represents the bulk of the business of most export credit agencies and normally includes transactions in raw materials, commodities, and consumer goods. There is no universally accepted dividing line between short- and medium-term credit.

Sovereign risk.

An obligation that carries the full faith and backing of the national government.

Structured financing.

Refers to financial instruments devised to provide funding on the basis of identifiable assets rather than the credit standing of the borrower concerned. Includes securitization and forms of lending where the cash flow of the borrower is secured to pay off the lender.

Supplier credit.

Credit extended by an exporter (supplier) to an overseas buyer as part of the export contract. Cover for this transaction may be extended by the export credit agency to the exporter. Such arrangements are much more common in short-term business. When they arise in the area of medium-term credit, the buyer normally makes a cash down payment (up to 15 percent) and then accepts bills of exchange or issues promissory notes for the balance at some stage before final delivery or acceptance of the goods.

Trade finance.

A catch-all term applied essentially to the whole area of short-term business, especially that involving finance provided directly by banks issuing letters of credit.

Transfer risk.

The risk that a buyer (investor) may make a deposit of local currency to pay for an international transaction (transfer profits and dividends) but find itself unable to convert the local currency into foreign exchange for the intended purposes. Such inconvertibility can happen even where letters of credit exist. The risk normally arises from restrictions imposed by host governments, through laws or regulations that have the force of law. Transfer risk is more complicated when a currency collapses, so that even though foreign exchange may still be available to purchase, its price will have risen sharply in local currency terms since the insured contract was signed (or the insured investment made).

Value-at-risk (VaR).

Value-at-risk summarizes in a single number the total exposure of a portfolio or institution to market risk. Such a number indicates the expected maximum loss (or worse loss) over a particular time horizon with a given confidence interval.

This appendix is based on OECD (2004) and related OECD documents published on the OECD websites.

Current participants are Australia, Canada, the European Community, Japan, Korea, New Zealand, Norway, Switzerland, and the United States.

See Kuhn, Horvath, and Jarvis (1995) and OECD (1998) for a description of developments up to the mid-1990s.

Project financing is defined under the OECD Arrangement as “financing of a particular economic unit in which a lender is satisfied to consider the cash flows and earnings of that economic unit as the source of funds from which a loan will be repaid and to the assets of the economic unit as collateral for the loan.” For more details, see West (1999) and “Project Finance: Special Guidelines on Flexibility for a Trial Period,” available via the Internet at,2340, en_2649_201185_2668454_1_1_1_1,00.html.

Early discussions are summarized in the 1998 Statement of Intent on Environment and the Action Statement adopted by the OECD Working Party on Export Credits and Credit Guarantees (ECG) in February 2000, the ECG Agreement on Environmental Information Exchange for Larger Projects adopted in 1999, and the 2001 Draft Recommendation on Common Approaches on Environment and Officially Supported Export Credits. See West (2004) for more details.

See “Action Statement on Bribery and Officially Supported Export Credits” available via the Internet at,2340, en_2649_201185_17785773_1_1_1_1,00.html.

For instance, the Atradius Annual Report 2004 states that its target is to keep its A-level rating by Standard and Poor’s.

See Appendix III for details.

Those ceilings are generally required by government regulations and can be set either on an annual basis, as a permanent criterion, or both.

In countries where IMF-supported programs limit the accumulation of external debt in nonconcessional terms by the public sector, ECAs tend to remain open for cover with the private sector.

See the COFACE Annual Report 2004.

In the case of sovereign guaranteed projects, ECAs can still ask the guaranteeing government for repayment, even if the project goes wrong.


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