Export Credit Insurance

I. Definition and Basic Concepts

Export Credit Insurance (ECI) is a financial tool by which a country, through policy-based insurance institutions, supports its domestic enterprises in export, outbound investment, and engineering contracting by providing protection against commercial and political risks of overseas buyers/employers. Its core logic is: when an exporter/contractor, after delivering goods, services, or works, is unable to collect payment due to buyer bankruptcy, default, or refusal to accept, or due to events such as war, exchange restrictions, or expropriation in the importing country, the insurance institution compensates at an agreed percentage.

In the overseas engineering sector, export credit insurance typically covers two types of subject matter:

Export trade: accounts receivable from the export of equipment and materials.
Overseas engineering contracting: progress payments, milestone payments, retention money, etc., for EPC, BOT, PPP, and other projects.

Sinosure (China Export & Credit Insurance Corporation) is China's official export credit agency and a member of the Berne Union. Its product system includes short-term export credit insurance, medium- and long-term export credit insurance, overseas investment insurance, guarantees, etc. The most commonly used by overseas engineering enterprises are medium- and long-term export credit insurance and specific contract insurance.

The essential difference between export credit insurance and general commercial insurance is that it does not take profit as its primary objective, but serves the national foreign trade strategy and industrial policy. Therefore, its premium rates are usually lower than commercial insurance, and its coverage is broader, especially for political risk.

II. Core Elements

Element	Short-term Export Credit Insurance	Medium- and Long-term Export Credit Insurance	Overseas Investment Insurance
Applicable amount	Single transaction ≤ USD 5 million, or annual ≤ USD 30 million	Single transaction ≥ USD 5 million, typically USD 10 million–1 billion	Investment principal + expected returns, typically ≥ USD 10 million
Term	Credit period ≤ 180 days (extendable to 360 days)	Credit period 2–15 years, even 20 years	Investment period 3–20 years
Premium rate	0.3%–1.5% (annualized)	0.5%–3.5% (annualized, depending on country risk)	0.5%–2.5% (annualized)
Compensation ratio	Commercial risk 80%–90%, political risk 90%–95%	Commercial risk 80%–90%, political risk 90%–95%	Political risk 90%–95%
Applicable scenarios	Equipment export, spare parts supply, small engineering payments	EPC turnkey, BOT/PPP, large complete equipment	Greenfield investment, equity acquisition, mining rights investment
Covered risks	Buyer bankruptcy, default, refusal to accept; war, exchange restrictions	Same as above + project interruption, government default	Expropriation, exchange restrictions, war, government default
Typical countries	Global, but high-risk countries require approval	Belt and Road countries, Africa, Southeast Asia, Latin America	Resource countries, high-risk countries

Key figures for reference:

Sinosure's average short-term premium rate is approximately 0.5%–0.8%.
Medium- and long-term insurance premium rates for a sovereign project in a certain African country can reach 2.5%–3.5%.
Claims waiting period: commercial risk typically 4–6 months, political risk 6–12 months.

III. Operational Process

Who initiates: The exporter/contractor (policyholder) initiates, and banks or employers may also push for it.

Who to approach:

Sinosure — China's official ECA.
National ECAs: Germany's Euler Hermes, France's Bpifrance, UKEF, Japan's NEXI, Korea's K-SURE, etc.
Commercial insurers: AIG, Zurich, Chubb, etc., but their political risk underwriting capacity is limited.

How long:

Short-term insurance: 2–4 weeks after complete documentation.
Medium- and long-term insurance: 3–6 months, and complex projects can take 9–12 months.
Overseas investment insurance: 2–4 months.

What materials:

Insurance application, business license, financial statements.
Commercial contract/framework agreement, tender documents.
Buyer/employer credit report (Sinosure can conduct the search on behalf).
Project feasibility study report, financing plan.
Country risk analysis, political risk mitigation measures.
Bank financing letter of intent (if financing is involved).

Process steps:

Pre-review: Submit project overview, Sinosure issues a letter of interest.
Formal application: Submit complete materials, Sinosure conducts internal review.
Underwriting approval: Approval by Sinosure headquarters/country risk committee.
Sign the policy: Clarify coverage, premium rate, compensation ratio.
Pay premiums: Usually paid annually or according to project progress.
Declaration and claims: After a risk occurs, report the case and submit claim materials within the prescribed period.

IV. Real Cases

Case 1: A Chinese central SOE's railway project in Ethiopia

Background: A central SOE contracted the Addis Ababa–Djibouti railway in Ethiopia, with a contract value of approximately USD 4 billion, with a Chinese concessional export buyer's credit.
Risk: Ethiopia faced foreign exchange shortages and severe exchange restrictions, and the employer could not pay the engineering payments on time.
Solution: Sinosure underwrote medium- and long-term export credit insurance, covering political risk (exchange restrictions, war) and commercial risk (employer default).
Result: During project execution, the Ethiopian side defaulted, and Sinosure compensated the Chinese bank at a 90% compensation ratio, safeguarding the project's cash flow. It continued to be executed later through debt restructuring.

Case 2: A private engineering enterprise's power station project in Pakistan

Background: A private enterprise contracted a 100MW photovoltaic power station in Punjab, Pakistan, with a contract value of USD 120 million, and the employer was a local independent power producer.
Risk: The Pakistani rupee depreciated sharply, and the employer's electricity revenue was insufficient to pay the USD engineering payments.
Solution: Sinosure underwrote specific contract insurance, covering commercial and political risks, with a compensation ratio of 85%.
Result: After the employer defaulted for 6 months, Sinosure initiated compensation, and the enterprise received approximately USD 80 million in indemnity, avoiding a break in its capital chain.

Case 3: A state-owned enterprise's nickel mine investment in Indonesia

Background: A state-owned enterprise invested USD 500 million in Indonesia to build a nickel-iron smelting plant, involving multiple risks such as mining rights, land, and environmental protection.
Risk: Indonesia's policies changed frequently, banning raw ore exports in 2020 and raising royalty rates in 2022.
Solution: Sinosure underwrote overseas investment insurance, covering expropriation, exchange restrictions, war, and government default.
Result: Although no actual compensation occurred, the policy provided credit enhancement for project financing, and the bank lent USD 350 million on that basis.

V. Common Pitfalls and Risks

1. Contract clause pitfalls

Claims waiting period: Commercial risk is typically 4–6 months, political risk 6–12 months. If the contract does not specify this, enterprises may mistakenly believe that "compensation is paid as soon as a problem occurs."
Compensation ratio: It is not 100% compensation, usually 80%–95%. Enterprises must bear the remaining part themselves.
Exclusions: For example, refusal by the buyer due to quality issues, the enterprise's own default, exchange rate fluctuations (unless stipulated in the contract), etc., are usually not covered.

2. Legal difference pitfalls

Sovereign immunity: Government employers in some countries claim sovereign immunity. Although Sinosure can underwrite political risk, recovery is difficult.
Arbitration enforcement: If the contract stipulates that the seat of arbitration is in China, but the employer's assets are overseas, enforcement is difficult.
Local laws: Countries such as Indonesia and Vietnam require local insurance, and Sinosure policies need to align with local laws.

3. Exchange rate risk

Sinosure usually underwrites in USD or RMB, but project revenue may be in local currency.
If the local currency depreciates sharply, the USD compensation paid by Sinosure may not be enough to cover the enterprise's actual losses.
Recommendation: Stipulate hard currency settlement in the contract, or purchase exchange rate hedging instruments.

4. Cultural difference pitfalls

Middle East: Employers value relationships, but payment delays are common, so credit investigations should be done in advance.
Africa: Changes in government may lead to project suspension, making Sinosure political risk coverage particularly important.
Latin America: Strikes and protests by unions and environmental organizations are frequent and may trigger political violence risk.

5. Other risks

Sinosure quota limits: There are underwriting caps for a single country and a single buyer, and enterprises need to apply in advance.
Premium cost: Medium- and long-term insurance premiums may account for 1%–3% of the contract value and need to be included in the quotation.
Financing linkage: Sinosure is usually linked with bank financing. If the bank does not recognize it, the value of the policy is discounted.

VI. Solution Comparison

Solution	Export Credit Insurance	Bank Guarantee	Commercial Insurance	Multilateral Investment Guarantee Agency (MIGA)
Covered risks	Commercial + political	Performance, advance payment	Mainly commercial	Political risk
Compensation ratio	80%–95%	100% (payable on demand)	80%–90%	90%–95%
Term	Short-term to 20 years	Usually ≤ 3 years	Usually ≤ 5 years	3–20 years
Premium rate	0.3%–3.5%	0.5%–2%	0.5%–3%	0.5%–2.5%
Applicable scenarios	Export, engineering, investment	Performance, advance payment	Cargo damage, transportation	Overseas investment
Advantages	State support, political risk	Fast, recognized by banks	Flexible, commercial market	Internationally recognized, multilateral institution
Disadvantages	Slow approval, many materials	Does not cover political risk	Weak political risk	Investment only, slow approval
Recommended scenarios	Belt and Road engineering	Employer requests a guarantee	General trade	Investment in high-risk countries

Selection advice:

If the project is in a high-risk country, prioritize Sinosure or MIGA.
If the employer requests an advance payment guarantee, use a bank guarantee.
If only cargo transportation insurance is needed, use commercial insurance.
If it is overseas equity investment, use Sinosure overseas investment insurance or MIGA.

VII. FAQ

Q1: Is export credit insurance mandatory?

A: No. But in China, when enterprises apply for export buyer's credit or concessional loans, Sinosure insurance is usually required.

Q2: After Sinosure compensates, does the enterprise still need to recover the debt?

A: After Sinosure compensates, the right of recovery is transferred to Sinosure, and the enterprise must cooperate by providing materials.

Q3: Can Sinosure premium rates be negotiated?

A: Yes. Country risk, buyer credit, project structure, and compensation ratio all affect the premium rate.

Q4: Does Sinosure cover exchange rate risk?

A: Usually not. Unless the contract stipulates settlement in USD and exchange restrictions prevent remittance.

Q5: If the employer is the government, will Sinosure compensate?

A: Yes. Political risk includes government default, expropriation, war, and exchange restrictions.

Q6: How long does Sinosure approval take?

A: Short-term 2–4 weeks, medium- and long-term 3–6 months, complex projects 9–12 months.

Q7: Can Sinosure cover retention money?

A: Yes. But the retention money clause must be clearly stated in the policy.

Q8: Do Sinosure and bank guarantees conflict?

A: No. Sinosure covers accounts receivable, while guarantees cover performance, and they can be used in combination.

Q9: Is a higher Sinosure compensation ratio always better?

A: Not necessarily. The higher the compensation ratio, the higher the premium rate. Enterprises need to balance cost and risk.

Q10: Can Sinosure cover subcontractors?

A: Yes. But the main contractor must insure, and subcontractors as beneficiaries must be listed in the policy.

Q11: Does Sinosure cover war risk?

A: Yes. But attention must be paid to exclusions, such as the enterprise itself participating in war.

Q12: Can Sinosure cover PPP projects?

A: Yes. Both medium- and long-term insurance and overseas investment insurance can cover them.

Q13: After Sinosure compensates, is the enterprise's credit affected?

A: No. Sinosure compensation is a normal means of enterprise risk management.

Q14: Can Sinosure cover RMB?

A: Yes. Sinosure supports RMB underwriting and compensation.

Q15: How to choose between Sinosure and MIGA?

A: Sinosure is more familiar with Chinese enterprises, while MIGA has high international recognition. For high-risk countries, they can be used in combination.

VIII. Related Terms

ECA: Export Credit Agency.
Berne Union: International organization of export credit and investment insurers.
Political risk: War, expropriation, exchange restrictions, government default.
Commercial risk: Buyer bankruptcy, default, refusal to accept.
Compensation ratio: The proportion of losses compensated by Sinosure.
Waiting period: The waiting time from the occurrence of risk to compensation.
Sovereign immunity: The immunity of a state and its property from the jurisdiction of another state's courts.
MIGA: Multilateral Investment Guarantee Agency, a member of the World Bank Group.
FIDIC: International Federation of Consulting Engineers, standard contract conditions.
BOT/PPP: Build-Operate-Transfer / Public-Private Partnership.

IX. Authoritative Sources

FIDIC: International Federation of Consulting Engineers, publisher of the Red Book, Yellow Book, and Silver Book.
ICC: International Chamber of Commerce, publisher of UCP600 and Incoterms.
Sinosure: China Export & Credit Insurance Corporation, www.sinosure.com.cn.
World Bank: www.worldbank.org, publisher of country risk reports.
MIGA: www.miga.org, Multilateral Investment Guarantee Agency.
Berne Union: www.berneunion.org.
OECD: Publisher of the Arrangement on Officially Supported Export Credits.
National ECAs: UKEF, NEXI, K-SURE, Euler Hermes, etc.