Prague Economic Papers 2021, 30(5):509-528 | DOI: 10.18267/j.pep.779

Fair Insurance Cover for Export Credit Under OECD Pricing Framework

Mikuláš Pýcha ORCID...^a

^a Prague University of Economics and Business, Department of Finance, Prague, Czech Republic

This article aims to analyse the issue of a lack of rules on the insurance cover of interest from an OECD perspective during the period 2010-2020. Export credit agencies (ECAs) support export and apply minimum premium rates (MPRs) to the principal amount only, while the insurance agreement covers also the interest amount. This area can be described as a grey zone, because ECAs can decide themselves what cover they provide for a limited price. This paper explains which parts of a lending rate should be covered under credit insurance and provides theoretical and empirical analysis of the maximum extent 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 failures such as moral hazard or adverse selection, which have a negative impact on the domestic economy. The right amount of interest cover, on the other hand, guarantees long-term sustainability and a level playing field among ECAs, as the OECD requires.

Keywords: State support, export credit, minimum premium rates, OECD consensus, export credit agency

JEL classification: G22, G29, H81

Received: January 28, 2021; Revised: May 12, 2021; Accepted: May 28, 2021; Prepublished online: August 11, 2021; Published: October 22, 2021  Show citation