The New Zealand Export Credit Office (NZECO) and its Australian counterpart, the Export Finance and Insurance Corporation (EFIC), recently entered into a Reciprocal Reinsurance Agreement to share risk in export credit transactions.
This agreement follows the general principle of reinsurance, where a lead export credit agency underwrites political and commercial risks for the entire export contract, and then reinsures a portion of this contract to another export credit agency whose exporter is a subcontractor.
"We are hopeful that this arrangement may facilitate increased involvement of New Zealand exporters in large contracts outside of New Zealand and Australia. The New Zealand company may either be the lead contractor, or else be invited by an Australian company to be a sub-contractor to the main export contract", says Carmen Moana, Manager of the NZECO.
For example, EFIC may underwrite a 5 year export credit guarantee relating to a multimillion project in Asia where an Australian exporter is the Primary Contractor. If a New Zealand exporter provides goods and services as a subcontractor to this project then EFIC can request the NZECO to reinsure that portion of that transaction. This reinsurance process does not involve additional documentation with the Buyer or Borrower, which is makes it attractive for these parties.
This is the NZECO's first reinsurance arrangement with an international export credit agency, and it is currently exploring other reinsurance opportunities around the world, in order to help New Zealand exporters access larger contracts and for the NZECO to manage its prudential limits or risk concentrations.