Business startup: Credit insurance

If you want to start a business in Germany, you must observe certain rules and regulations. Here you will find information about your rights and obligations, in particular regarding credit insurance.

Credit insurance

Credit insurance insures an exporter or a Exporter against the risk of not being paid under an export contract or not being able to recover the costs of fulfilling this contract due to certain events that prevent its fulfillment or lead to its termination. Credit insurance can be provided by both private insurance companies as well as from public export credit agencies are offered.

Credit insurance of government entities and agencies
In Germany, the task of state export credit insurance carried out by Euler Hermes Aktiengesellschaft, on behalf and for the account of the Federal Republic of Germany. The German Export credit guarantees are under the name Hermes covers known.

If the foreign customer is a private individual or a privately organized company, the Federal Government assumes cover in the form of a export guarantee. If, on the other hand, the state or a public-law corporation is the client, the federal government assumes coverage in the form of a export guarantee. Basically, there is no lower limit from which coverage is not possible.

Federal cover
Hermes guarantees can be granted if the criteria of eligibility for promotion and justifiable risk are met.
 

• The Eligibility for funding can consist – alongside a general export interest – of securing jobs, structural policy considerations, or foreign policy goals. Ecological, social, and development policy aspects are increasingly being incorporated into decisions.
• The justifiability in terms of risk means that there must be a reasonable prospect of a loss-free course. Whether and to what extent coverage can be provided depends on the specific resolution status for the respective ordering country.

The Decision for the coverage of an export transaction, the so-called Interministerial Committee for Export Credit Guarantees (IMA). For each individual export country, the IMA establishes a risk-appropriate cover policy, thereby determining Scope and conditions for the respective protection options.

Export credit guarantees may only toward German exporters or assumed toward credit institutions that finance transactions of German export companies.

Hermes guarantees are only used where the private sector does not provide a corresponding or sufficient coverage offer. Consequently, the federal government's business focuses on export credit guarantees for developing and emerging countries. Hermes covers help to open up hard-to-reach markets and maintain business relationships in difficult times.

Requirements and procedures for setting up a new credit insurance

The Federal Government has Processing of applications transferred to state export credit guarantees of Euler Hermes Aktiengesellschaft. These are authorized to issue and receive essential declarations on behalf and for the account of the Federal Republic. Euler Hermes Aktiengesellschaft is the lead manager for both companies.

Applications for manufacturing risk insurance or export credit guarantees are submitted by the exporting companies, applications for financial credit insurance is handled by the financing local bank.

 

Digital applications
The federal government has with „Hermes Cover click&cover EXPORT“a product created that enables exporting companies to efficiently and digitally conclude international business up to five million euro with standardized supplier credit coverages. An online application, including preliminary check and fee indication, can be made via AGA-Portal be made.

„Hermesdeckungen click&cover EXPORT“ are primarily suitable for standardized transactions with parameters including the following:

• Contract value: maximum 5 million EUR
• Payment terms: selected regular repayment profiles only
• maximum loan term: 5 years
• States of country categories 1 to 5
• permitted foreign investment share: maximum 49 percent

• thereof local costs: 11.5 percent of the total contract value.

Costs and deductible

The costs for securing your export business are made up of fees and charges.

• The Fees are charged for the resulting effort and generally depend on the size of the transaction to be secured, i.e., the order value or Loan amount, ab. This includes, for example, the application fee, which is charged once when you submit an application.
• Fees are generally risk-oriented and make up the majority of the costs. When calculating the fee, the risk term, the country and buyer risk, as well as your own deductible for the risk and any available collateral are factored in. As a result, smaller risks cause lower costs than high risks.

After Principle of risk sharing do beneficiaries of an Euler Hermes credit insurance policy have to bear part of the risk themselves. The amount depends on the type of coverage. This risk must not be insured elsewhere and comes into play in the event of a claim.

This Deductible regularly amounts to for the political risks 5 percent and for the Non-payment and insolvency risks 15 percent.

Premiums

The premium for the insurance coverage is calculated in per mille of the turnover or open items. In addition to the general economic situation, company-specific factors are also included in the calculation of the premium rate, such as:

• one's own industry,
• the consuming industry,
• the export share,
• the quality of one's own accounts receivable management,
• Past bad debt losses.

The claims decision will be made within a 2-month period from receipt of all required documents. The payout of the compensation amount will take place within a 1-month period from notification of the claims settlement. In the case of financial credit guarantees and the comprehensive export guarantee light (APG-light), the processing period is shortened to 1 month, and the payout period is 5 bank business days.

The APG-light is a cost-effective and easy-to-use protection for short-term receivables with payment terms of up to 4 months for German exporting companies that repeatedly supply multiple buyers in different countries.

Alternatives to credit insurance

In addition to state-backed Hermes cover, there are also private export credit insurance in Germany. However, these sometimes do not provide coverage for political risks.

The three largest private credit insurers operating in Germany are:

• Euler Hermes Germany, Hamburg
• Coface Kreditversicherungs AG, Mainz
• Atradius Credit Insurance, Cologne

• Export Credit Guarantees of the Federal Republic of Germany, AGA Portal
• "Basic Knowledge 2022 Foreign Trade Financing" brochure of the Federal Ministry for Economic Affairs and Climate Action
• What fees and charges apply for an export credit guarantee
• Information on conditions for securing your international business with an export credit guarantee