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Covered Risks

A broad range of options for banks and exporters

The appropriate type of cover is available for every export transaction. From specific cover to wholeturnover policies and finance credit guarantees, and including project financing cover – the underwriting tools cover the entire range of possibilities.

There are cover options for the period prior to shipment of the goods and for the credit period following despatch. Pre-shipment cover gives protection from risks during the manufacture of the goods earmarked for export. Export risks following the goods‘ shipment are covered by export credit guarantees.

In order to finance his export business, the foreign buyer can make use either of a supplier credit or a buyer credit. In the case of supplier credits, the German exporter applies for cover for his transaction. If a bank finances the export business via a tied finance credit, it can obtain cover for the default risk in the form of a Hermes guarantee.

Companies should therefore inform themselves before applying about what the most appropriate type of cover may be for their goods‘ deliveries or the services they intend to perform, and precisely what risks need to be covered.

Guarantees for private and public buyers

If your foreign customer is a private person or a company constituted under the provisions of the civil or commercial code of the country concerned, the Federal Government gives cover in the form of an export guarantee for private buyers. If the buyer is the state or a public corporation, or if the state is liable for a private buyer‘s debts either by law or because they have given a guarantee in respect of them, Federal Government cover takes the form of a public buyer guarantee. These two terms are only employed so as to ensure a systematic distinction between different buyers‘ categories. They do not correspond to the legal significance of the terms as understood by the banks or as defined by the German Civil Code (BGB). Export guarantees for private buyers include the risk of bankruptcy, which cannot occur in the case of public debtors in public buyer cover, since a state or state institution cannot legally be declared bankrupt. The two forms of cover therefore differ in the premium rate charged. When deciding whether a buyer belongs in the private or the public category, one main criterion is whether the state is directly or indirectly liable for the buyer’s debts and whether the possibility of bankruptcy proceedings can be excluded legally or in practice.

The Federal Government covers commercial and political risks

Political risks

  • Bad debt losses due to legislative or administrative measures, war, civil commotion or revolution abroad (the general political risk)
  • Losses due to non-conversion and non-transfer of amounts paid by the debtor in local currency due to restrictions in the international payment system (in the past the most frequent cause of loss)
  • Loss of the right to receive payment due to frustration of contract for political reasons
  • The loss of goods before the risk has passed to the foreign buyer due to political circumstances (e.g., the goods were confiscated, destroyed etc. before reaching the buyer).

Commercial risks

  • Loss of receivables due to non-payment after a certain period (protracted default)
  • Loss of receivables due to the bankruptcy of the buyer, a composition settlement in or out of court, an unsuccessful judgement execution or suspension of payments by the buyer

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