V - SMIVsInsurance Against the Risk of Inability to Fulfil an Export Contract

Case Study:

Mr Kladívko’s company successfully exports nails to Azerbaijan, India, Serbia and other countries. He now has 15 foreign customers. He continues to increase production and take on extra employees. He has pre-export financing credit from his bank, which is covered by EGAP insurance. All of his foreign customers make punctual payments for the goods supplied. However, a colleague from another company learns that the market in one of the countries is changing rapidly and that some customers are cancelling the contracts they have signed. Mr Kladívko decides it’s time to go back to EGAP so that he can cover himself against the risk that customers will breach or cancel their export contracts. As his staff will soon start working on the supply, and the goods, once made, cannot be exported anywhere else, and as production will be financed with pre-export credit from the bank, he takes out insurance with EGAP that covers him against the risk that foreign partners will be unable to comply with their contracts.

Product description:

The risk of inability to fulfil an export contract (so-called manufacturing risk) consists in possibility of cancellation or interruption of an export contract on foreign importer’s part during manufacturing.

Reasons may vary; they are not only insolvency of a foreign importer or refusal to accept the goods but they may also arise from political, financial or macro-economical situation in the importer’s country. Insurance covers the risk of the exporter of incurring a financial loss as a result of inability to fulfil the export contract. It may be arranged either separately or in succession to insurance of the export or pre-export credit. The insurance covers the exporter's risk that he will suffer a financial loss as a result of the impossibility of fulfilling the export contract and may be negotiated only on the basis of export or pre-export credit insurance. Separately, only in the case of sufficient collateral for export contract receivables.

• The share of value of supplies with the origin in the Czech Republic in the export value – rules you can find here,
• trouble-free credit history1 of entities2,
• The entity2 has existed and executed the activity being the subject of export for no less than 2 years before submitting the application for insurance against the risk of impossibility to perform export contract or its activity follows up on the activity of its legal predecessor – a person that carried out the activity for no less than 2 years before submitting the application against the risk of impossibility to perform export contract
• reinsurance and security of receivables under the Export Contract
  • insurance with EGAP – B, Bf, C, Cf, D
  • insurance with a commercial insurer
  • letter of credit
  • 100% advance payment (at least 30% before commencement of production)
• The insurance of credit or an account receivable linked to agricultural products listed in Annex 1 to the Agreement on Agriculture, constituting part of the Agreement Establishing the World Trade Organisation (WTO), the maturity of which must not be more than 18 months (from the starting point of credit to the contractual final maturity date)