Export credit agencies (ECAs) are state-supported agencies that provide export credit insurance to sellers from their countries when selling goods or services to foreign buyers on credit terms. ECAs also provide export credit insurance to banks when providing loans to foreign buyers for purchasing goods or services from sellers from the ECA countries. The purpose of establishing an ECA is to support national export and create new employment opportunities in the ECA country. Since ECAs are established to support national exports, each ECA will insure the credit risks connected with the export from its country only, and will not insure the credit risks connected with export from other countries.
ECAs provide export credit insurance on behalf of their states, which will support them financially if necessary. This means an ECA will be able to pay indemnification to the insured sellers even when the ECA’s financial reserves are not sufficient to pay all losses. This is seen as an advantage of the ECA export credit insurance compared to the export credit insurance provided by private insurance companies.
The capacity of ECAs to insure credit risks is usually large, which is also seen as an advantage. ECAs charge premiums for insuring export credit risks.
The business of ECAs is internationally regulated by international agreements. The most important agreement is agreed within the Organisation for Economic Co-operation and Development (OECD) and is called the OECD Arrangement on Officially Supported Export Credits. Within the European Union (EU), the business of the ECAs from EU member-states is regulated by EU legislation in a way that these ECAs are not allowed to insure export credit risks in transactions where the duration of credit is less than two years. Such credit risks are called short-term credit risks.
While the business of ECAs is limited to insuring export credit risks only, private insurance companies insure numerous other types of risks, both domestically and internationally. Insuring export credit risks is only a part of the business of private insurers.
When dealing with export credit risks, private insurers are usually interested in insuring short-term export credit risks. The medium- to long-term export credit risks, which are the risks where the duration of credit is two years or more, are insured by ECAs. The capacity of private insurers to insure export credit risks is not large since they have their internal limits for covering new risks. While the terms of export credit insurance provided by ECAs are regulated internationally, private insurers are not regulated in the same way, and they carry on their business on commercial grounds only.
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