Services
Credit insurance provides banks with the most important commodity of all:
COLLATERAL ENHANCEMENT.
Credit insurance is a significant component of any financial package because of the comprehensive scope of risks it addresses. For example, when clients insure their domestic receivables, the receivable portfolio becomes more attractive to the lender. Credit insurance coverage may allow the lender to increase the discount rate of the receivable to the borrower, thereby increasing the borrowing capacity. The use of credit insurance is an attractive enhancement to lenders, as it results in a greater cash employed position. Credit insurance facilitates this mutually beneficial and lucrative relationship between banks and borrowers.
As a marketing strategy, by having the client insure its foreign receivables, the bank creates an entirely new asset base with additional lending eligibility. Once again this creates an opportunity for greater cash employed.
On either the domestic or international side, the insurance providers all offer a special inventory protection endorsement that is available only as an attachment to a credit insurance policy. This endorsement permits the filing of claims against insolvent debtors in situations where clients either make or import goods of a custom nature. The opportunity to extend insurance coverage for a previously uncovered risk allows the lender to increase the ratio of allowable assets into the “formula” for borrowings. Cash employed is enhanced.
The client or the bank can also insure letters of credit. This particular type of coverage is most important when the seller cannot obtain bank confirmation. Of course, open account relationships from the seller to the importer overseas are usually preferable and, where possible, open lines of credit can be insured, depending upon the country involved.
Political Risk
Political Risk policies allow a client to protect assets located overseas. This type of policy is available to those companies that have a manufacturing facility overseas or have purchased goods overseas, but not yet taken possession of them. These policies may also include coverage for such items as confiscation, nationalization, contract frustration, currency conversion, and repatriation of dollars, and are predicated upon the individual needs of the client in conjunction with requirements, as stipulated by the lending bank. Political coverage is also applicable for open-term sales as it relates to commercial transactions.
For further information contact Joel Berman at 631-265-6570 or email joelberman@creditinsuranceintl.com