Fair insurance cover for export credit under oecd pricing framework
Fair insurance cover for export credit under oecd pricing framework

Summary/Abstract: This article aims to analyse the issue of a lack of rules on the insurance cover of interestfrom an OECD perspective during the period 2010–2020. Export credit agencies (ECAs)support export and apply minimum premium rates (MPRs) to the principal amountonly, while the insurance agreement covers also the interest amount. This area can bedescribed as a grey zone, because ECAs can decide themselves what cover they providefor a limited price. This paper explains which parts of a lending rate should be coveredunder credit insurance and provides theoretical and empirical analysis of the maximumextent of interest cover. The extent of such cover is closely related to the return on ECAs’investments. An excessive amount of interest cover creates room for market failuressuch as moral hazard or adverse selection, which have a negative impact on the domesticeconomy. The right amount of interest cover, on the other hand, guarantees long-termsustainability and a level playing field among ECAs, as the OECD requires.

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