ECGC to give reinsurance aid to exports

State-owned Export Credit Guarantee Corporation (ECGC) of India plans to provide reinsurance support to exports from India for overseas contracts won by foreign companies.

Credit insurance for such contracts are bought by foreign companies, including for exports, but getting reinsurance for these are difficult. In countries like China, government-owned firms provide the reinsurance support. ECGC now wants to fill this gap in India.

"Six months ago, we had written to the Government of India seeking approval for providing inward reinsurance support," said AV Muralidharan, CMD of ECGC, at Insurance Summit 2008 organised by National Insurance Academy.

ECGC at present provides a range of credit risk insurance covers to exporters against loss in export of goods and services, offers guarantees to banks and financial institutions, overseas investment insurance to Indian companies investing in joint ventures abroad in the form of equity or loan.

Explaining how the inward reinsurance will work, an official said, "For example- ABC, a renowned wind energy manufacturing company, which is based in Amsterdam, will be selling goods to XYZ Company in Australia. The credit extended to XYZ contains imports from India, Russia and US. The credit insurance cover that has been brought by ABC from a European insurance company will have reinsurance support for the Indian portion of the contract."

"Here the goods covered are plants, and heavy machinery and the credit payment is not for one year but over a longer term like 5 to 10 years. Therefore, normal reinsurers are hesitant to provide reinsurance support for such long term covers," said the official.

"European and Chinese credit insurance companies have shown interest in doing business with us for inward reinsurance. In most countries, reinsurance is provided by government agencies," said the official.

ECGC is likely to provide the reinsurance support through National Export Insurance Account (NEIA), a pool which has been set-up by the Union government and operated by ECGC. The proposed fund by the government for NEIA is Rs 2000 crore.

The NEIA offers credit insurance covers for projects (long- and medium-term) executed by Indian companies overseas.