International union of credit and investment insurers - the Berne Union has led to an international cooperation and embracement of sound principles with export credit insurance and investment abroad, as well as to equalize the conditions under which coverage of export credit and investment abroad are approved. The Berne Union was founded in 1934, by a group of private and state-owned export credit insurers from France, Italy, Spain and the United Kingdom. (Berneunion, http://www.berneunion.org/about- the-berne-union/) Registered headquarter is in Bern, which means that the law of Switzerland is applied, but headquarter of a very active secretariat is in London. During time, this extremely important and influential international non-profit association, widened its membership and broadened the range of activities.
The main condition for membership in this association was that an institution ensuredreceivablesto significant extent fromnon-commercial–political risks. Insurance claims from commercial risks is also present in these institutions, with the difference that the insurance of non-commercial risksis the main characteristic and purpose of association due to its multiple features, non-compactness of these risks, opportunities for simultaneous occurrence of a large number of risks, difficult or almost impossible actuary in a way that it exists in all other types of insurance, insurance institute combinations and measures of foreign policy, geopolitics, national export strategy and development, diplomacy and other public law elements.
Since the mid-nineties until now, the national export credit agencies has joined this association and / or other organizations from countries that have completed the process of transition as well as some countries that have succeeded in an attempt to move from the status of developing countries to the status of developed countries. (Stamenković&Rujević – Džodžo,2008, p.25)The main aim of the Berne Union is the promotion of international practices of export credit insurance and foreign investment, and the acceptance of common principles of insurance, mutual exchange of information about customers, banks and countries. It cooperates closely with international financial organizations. The changes in the market of credit insurance in the early nineties had a major impact on the organization of the Berne Union.Namely, along with the globalization of the world economy came a major expansion of network of branches and subsidiaries of insurers, members of the Berne Union, privatization and acquisitions.
Special activities of the Berne Union include the acceptance of harmonized basic rules and standards in the implementation of insurance, that is,export credit guarantee and investment, and the development and implementation of insurance-related innovative financial products for export and debt collection. The Berne Union, within determining insurance policies, forms the key guidelines for export credit insurance for certain types of products and services, relies on the categorization by the OECD, regarding a list of risks of countries, brings the basic principles and recommends requirements in export credit insurance, guarantee of payment, investment insurance in some investment countries.Members of the Berne Union, in relation to the official export credits (export credits with state support mostly through ECAs and for the corresponding products and the duration over two years), are obliged to adhere to the OECD Agreement on guidelines for officially approved export credits (height of a minimum advance payment, the credit duration depending on the type of export, development of a country, credit risk and country risk, the minimum interest rate, provided that these conditions are reviewed every six months, and the interest rate on a monthly basis, appropriate protective clause, etc.). The present arrangement does not cover the export of military equipment and export of agricultural products.With regard to the premium insurance, since 1998, the OECD members have reached an Agreement on minimum premium rates that must be charged with export credit insurance, in order to avoid the possibility of subsidized transactions, in case of applying lower premium than the prescribed minimum. This agreement is known as "The Knaeppen" packageand within it all the countries are divided in eight categories (the OECD countries with high amount of annual income tax, very low political risk etc. belong to the category "O"), so that the premium is determined depending on the category to which a ranked country belongs in terms of risk, the percentage of credited part of a business and life insurance coverage. Categorization of the OECD countries according to the level of risk is reviewed every six months.
Table 1: Rules of the Berne Union in terms of the credit duration Types of goods and services Credit duration
Raw materials, primary products and semi-finished
products
Maximum 6 months Consumer goods and
consumer services Maximum 6 months Durable goods Maximum 2years Parts and components
including related services Maximum 6 months, , exceptionally up to 5 years if it is justified Quasi capital equipment,
including related services Depending on the contract value, maximum 5 years Capital goods and project
services Maximum 5 years, or more if it is in accordance with the agreement with the OECD Complete factories Maximum 5 years, or more if it is in accordance with the agreement with the OECD Source: Bern Union General Understanding, January 2001
Depending on the type of goods that are exported, members of the Berne Union agreed on the maximum duration of the credit, as shown in Table 1.
The Berne Union and its members are an important link in the chain of world trade and its member states record a steady growth in business, or in the extent of coverage of export business and investment with state support. The Union concludes agreements, issues recommendations and encourages the exchange of information through three committees - for short-term business, for the medium / long-term business and through the committee for investment insurance. According to estimates, about 90% of world trade is carried out with the support of one or more instruments of trade finance. (Kovačević, 2013, p.12) The importance of export credits mostly includes the following information on the insured amount of export credits.
Figure 1: Investment, medium and long-term credits, short-term credits
Source: Berne Union Statistics 2008-2012, http://www.berneunion.org/wp-content/uploads/2013/10/Berne-Union-2013-Charts-and- numbers-for-website.pdf
From the chart we can observe a dominant share of short-term credits (up to 12 months), with a tendency of growth in the period 2009-2012. The same tendency can be seen in the movement along the demand for medium-and long-term credits. The increase in demand for insurance of medium-and long-term credits is characterized by the appearance of environments in which systemic risks occur, and in this segment of the market credit agencies play a crucial role. During the current crisis they mitigated the basics of credit insurance and increased the offer in order to reduce market tensions.
0 500.000 1.000.000 1.500.000 2.000.000 2.500.000 2009 2010 2011 2012 Investment
Medium and long-term credits Short-term credits
Figure 2: Short-term credit insurance by countries
Source: Berne Union Statistics 2008-2012http://www.berneunion.org/wp-content/uploads/2013/10/Berne-Union-2013- Charts-and-numbers-for-website.pdf
The previous chart illustrates the participation of short-term credit insurance by the countries with the highest credit amount. The United States has the largest amount of insured short-term credits amounting to USD 73,538,000, and immediately after the approximate amounts of short-term export credits belong to Germany and the United Kingdom.
When it comes to the insured medium- and long-term credits by countries, Russia has the highest amount of these credits amounting to USD 9.386 million, and immediately after, the United States amounting to USD 9.224 million. The share of the ten countries that have the highest achieved volume of insured medium-term and long-term export credits can be seen in the following chart:
Figure 3: Medium and long-term export credit insurance by countries
Source:http://www.berneunion.org/wp-content/uploads/2013/10/Berne-Union-2013-Charts-and-numbers-for- website.pdf
In addition to the Berne Union, there are other associations of export credit insurers worldwide with state support. One of them is the International Credit Insurance & Surety Association (ICISA), which has 40 member states, and some of them are members of many such associations (e.g. Euler Hermes, Atradius and Coface, as well as the leading reinsurance companies Munich Re, Swiss Re, Hannover Re, Partner Re and Converium). Similar to the Berne Union, ICISA sets as its main aim the mutual exchange of information, promotion of international practices of export credit insurance and representing the interests of insurers at the international level (in the EU, the World Bank, the UN, etc.). The total number of registered agencies (public and private) that deal with financing and export credit insurance is 163 in 79 countries, provided that in this area there are a number of multilateral agencies (Corporation Andina de Fomiento, Banco Latino Americano de Exportaciones, MIGA, Afrieximbank, Inter Arab Investment Guarantee Corporation).
United States Germany United Kingdom Italy France China Spain Netherlands Brazil Switzerland Other
Russia United States India Saudi Arabia China United Arab Emirates Korea Republic Italy Mexico Other