Why Banks Buy Credit Insurance?
Banks and other financial institutions use trade credit and political risk insurance to protect trade assets (loans, letters of credit, banker’s acceptances, trade acceptances & purchased accounts receivable), non-trade assets (loans and standby letters of credit) and collateral (pledged accounts receivable) against obligor default due to commercial or political events. Coverage is available on a comprehensive (“failure to pay”) or political-risks-only basis.
Coverage is also utilized by banks and financial institutions to increase business capabilities via management of internal individual obligor and / or country limit constraints.
Banks and financial institutions that engage in asset-based lending can also assist clients in expanding a borrowing base formulas by having the client insure otherwise excluded assets with the bank or financial institution named as loss payee. The trade credit insurance policy can be used as collateral in these financings.
Coverages
• Trade Obligations
• Confirmed Letters of Credit
• Bankers Acceptances
• Trade Acceptances (drafts)
• Trade loans (bilateral and syndications)
• Supply Chain Financing
• Purchased Accounts Receivable
• Single debtor or multibuyer
• Accounts Payable Financing
• Single or multiple Suppliers
• Asset-Based Lending
• Insuring foreign and otherwise excluded accounts receivable from a borrowing base formula
• Non-Trade Bank-to-Bank Financing
• Standby Letters of Credit
• Loans (bilateral and syndications)
• Portfolio Concentration Management
• Typically structured on an excess-of-loss basis
• Country Limit constraints
• Obligor Limit constraints
• Insurer Limit constraints
