Understand how Export Credit Insurance (ECI) works!

  • 12/01/2021
  • 10 minutes

Export Credit Insurance (ECI) has existed in Brazil for over 40 years, with the aim of reassuring exporters about their cargo, considering the high risk market in which they operate.

In this article, we will go into more detail about how the ECI works in Brazil, who should contract it and some important aspects regarding this essential service for the good progress of the works in the segment.

For this, we spoke with Jefferson Nascimento, specialist in Foreign Trade, Consulting and Customs Advisory. Keep reading!

What is the ECI?

According to the Brazilian Guarantees and Fund Managements Agency (ABGF), the ECI aims to cover export credit operations in the face of a series of risks — among them, commercial, political and extraordinary.

This coverage is originally provided for in Law No. 6,704, of October 26, 1979 —, although it has undergone regulations and amendments.

Granting of guarantees by the Federal Government

Brazilian exports of goods and services, as well as export credit operations for this purpose, may also have access to the granting of guarantees by the Federal Government, according to the details contained in the text of the legislation.

In the case of credit operations, foreign exports can benefit from insurance, as long as they follow the requirements indicated by law. In these situations, however, brokerage fees will not be due, that is, the payment of fees due by Brazilian exporters to their agents.

The ECI can also be used to cover financing granted by banks of any nature to Brazilian exports. There are no restrictions related to goods or services, not even regarding the importer’s country of origin. However, there is no coverage foreseen for local expenses (such as goods purchased abroad, for example).

How does Export Credit Insurance work?

The first step is to apply for the grant of an ECI to ABGF. This institution is responsible for analyzing all issues regarding the insurance. First of all, the interested party should pay special attention to CAMEX Resolution No. 88, of November 10, 2017, which deals with the official Brazilian support to exports, after the signature of the Exporter’s Declaration of Commitment.

According to the Resolution, Brazil took responsibility when accepting to enter as a signatory to the 1997 Convention on Combating the Corruption of Foreign Public Officials in International Commercial Transactions.

Thus, the country follows the guidelines of the Organisation for Economic Co-operation and Development (OECD) Concil, related to Corruption and Export Credits with Official Support, dated 2006. In them, all exporters who demand export credit support in an official manner must act in accordance with the document’s recommendations.

Medium and long term operations

However, the rules do not stop there. The operations covered by the ECI can be of short, medium or long term, which should be clear from the beginning of the process.

According to the Ministry of Finance, the coverage of Export Credit Insurance aims to cover a market failure, since medium and long term export credit operations, more specifically those with terms over two years, can offer a level risk for which private guarantors are often unwilling to operate.

In the case of Medium and Long Term (MLP) operations, with a credit period longer than two years, the interested company must access the ABGF website. Each case has different criteria, which may include corporate risk, structured operations, aeronautics or defense.

In order to send the information for analysis by ABGF, it is necessary that the exporter, financial institution or agent access the registration link and submit all the requested data. For cases in which the operation is MLP, the option “Medium and Long Term” must be chosen.

The risks covered by the Export Credit Insurance — MLP are as follows:

  • Pre-credit — manufacturing risk before shipment, due to a political or economic event responsible for interrupting the execution of the commercial or goods and services contract;
  • Credit — risk that payment will not be made by the debtor after the items are shipped, be it of a commercial, political or extraordinary nature.

An important detail: the Export Credit Insurance operations guaranteed by the FGE for SMEs, are suspended, according to the decision of the 169th Ordinary Meeting of the Export Financing and Guarantees Committee (COFIG), held on February 17, 2020, according to ABGF.

According to ABGF, and Resolution GECEX No. 12-2020, published in the Federal Official Journal, in edition No. 23 of 02.03.2020, the export support model will undergo the regulatory review of administrative and normative, legal and infra-legal acts, referring to Export Credit Insurance (ECI), the Export Financing Program (PROEX) and the Export Guarantee Fund (FGE).

That is, until new guidelines are established, operations in these situations will be suspended.

Who should contract this type of insurance?

As previously stated, the ECI can be used both by exporters and by financial institutions and insurers of different types, as long as they comply with what Law 6,704 says.

The recommendation for insurance to be contracted is due to the great challenges faced by those working in the area, especially regarding the insecurity in the activity, considering the possibility of increasing the difference between the price of purchase (demand) and sale (supply). This impacts the competitiveness of Brazilian exports.

In addition to the risks, there are also the obstacles of bureaucracy. Ideally, there would be more flexibility in ECI operations, with the possibility of new MLP coverages for pre-shipment products, which would result in a greater gain not only for exporters, but for the country’s economy in general. After all, with a greater number of possible operations to be carried out and less time needed for analysis and approval of the claims requested, everyone would grow together.

“But it is important to emphasize that this would require changing the legislation that deals with the subject, since this type of operation has a specific rule, which must be strictly followed, including being in accordance with the international agreements to which Brazil is a signatory”, ponders Nascimento.

How Wilson Sons can help in contracting ECI

Wilson Sons is able to work for its clients (charterers) in the conduct and improvement of the entire process. Due to the company’s good reputation and history in the industry, in addition to its expertise in cargo insurance in the national and international markets, Wilson Sons offers more security between the parties. After all, long periods without accidents and the well-known competence of the organization are testimonies of seriousness very well accepted in the area.

Throughout the post, we brought a more in-depth idea of how Export Credit Insurance (ECI) works, regulated in Brazil since 1979 and essential for the export market to operate with tranquility and less risk.

Now, how about contacting Wilson Sons and better understanding how the company can help in this regard?