Foreign Exchange Risk Insurance

If the offer you submit to your buyer is in foreign currency, what will happen if that currency depreciates during the offer phase?

 

 

 

 

 

 

 

 

 

Will you still make a profit after having paid all your expenses in euros?

How does Foreign Exchange Risk Insurance work?

An important advantage of Currency Risk Insurance is that you have no obligation to buy or sell foreign exchange - as you would if you entered into a foreign exchange forward contract. Under a Foreign Exchange Risk Insurance policy, Atradius Dutch State Business guarantees an exporter a specific (forward) exchange rate, which decrease exchange rate risks. After your export contract has come into force, Atradius DSB will settle any exchange rate losses or gains with you. Should you however not have been awarded the export contract, the Foreign Exchange Risk Insurance will simply expire with no further obligation on your part.

Which currencies can I insure?

Offers submitted in the following “standard” currencies may qualify for Foreign Exchange Risk Insurance (fx risk):

• USD – US dollar
• CHF – Swiss franc
• CAD – Canadian dollar
• GBP – British pound
• AUD – Australian dollar
• NZD – New Zealand dollar
• JPY – Japanese yen
• NOK – Norwegian krone
• SEK – Swedish krona
• DKK – Danish krone
• PLN - Polish Zloty
• KRW - South-Korean Won

In addition to the currencies of the traditional industrialised countries, a few “exotic” currencies can be insured. These include various currencies pegged to the US dollar and the currencies of certain relatively highly-developed emerging markets. We can consider insuring other “exotic” currencies on a case-by-case basis. An important criteria is that, for the currency concerned, a well-developed currency futures market exists where forward rates are determined by interest rate differentials (covered interest rate parity). Insurance premiums for “exotic” currencies are higher than those for “standard” currencies.

Maximum cover/Deductible

The covered percentage is normally 100% of the value of the insured contract. You can however choose to bear 1% - 2.5% of the risk yourself, in which case you will naturally pay a lower premium.

Premium

The premium comprises a fixed and a variable component. The fixed component is in principal 0.5% of the insured contract value, with a maximum of EUR 125,000. The variable component is 0.1667% of the insured contract value per month for “standard” currencies and 0.25% per month for “exotic” currencies.

Five per cent of the premium is payable upon issuance of the policy. The remainder is payable only if and when your contract comes into force.

Application procedure and guaranteed exchange rate

You must apply for Foreign Exchange Risk Insurance before submitting an offer in foreign currency to your buyer. The guaranteed exchange rate can be fixed up to five work days prior to the submission date of your offer. When Atradius Dutch State Business issues a Foreign Exchange Risk Insurance policy it guarantees you a specific exchange rate applicable on the expiry date of the insured bidding and offer period. This rate will be based on the ECB reference rate and the interest rate differentials between the currency concerned and the euro during the insured validity period of your offer. You may choose the validity period yourself, up to a maximum of 36 months.

Exchange rate gain or loss

If the export contract comes into force, any gain or loss under the Foreign Exchange Risk Insurance policy must be settled. If the foreign currency concerned appreciated in relation to the guaranteed exchange rate, you must transfer any exchange rate gains to Atradius Dutch State Business. If however the foreign currency depreciated and therefore the value of your receivables, when converted to euros, turns out to be lower than expected, Atradius Dutch State Business will indemnify you for the loss.

Questions or advice?

 

Our general conditions are available in Dutch.