The saturated country limit, and what it forbids writing

An earlier module dealt with the country limit from the point of view of the insured with a claim, the one who discovers when counting that three ceilings coexist and that the lowest is not the one it remembered. Here we take it from the other end, that of the portfolio, because it is on that side that who gets capacity and who waits is decided. An exporter told there is no more room on a country hears a judgment on its file, and it is wrong: the country limit is an allocation of capacity, it is consumed in commitments and not in claims, and it is saturated by business that has nothing to do with its own and of which it will never hear.

The first consequence is that the quality of the risk presented unblocks nothing. An exporter receiving a refusal ordinarily argues about the soundness of its buyer, the age of the relationship and the absence of incident, that is, about the only points not in issue. What is scarce is not confidence, it is the metre of capacity, and a good piece of business consumes exactly as much capacity as a mediocre one for an equal amount. Understanding this changes the conversation with the underwriter, because one stops pleading and starts looking for what, in the structure of the transaction, costs capacity for nothing.

And there almost always is something, because a limit is not consumed in amount alone: it is consumed in amount multiplied by tenor. A nine million commitment over two years ties up capacity for two years; the same amount over one hundred and eighty days frees it twice within the year. Many portfolios moreover carry sub-limits by tenor band, precisely because length is what saturates. Shortening the tenor, splitting a shipment, bringing forward an intermediate maturity are therefore real levers where the quality argument is not one, and they are levers the exporter holds and the underwriter cannot pull in its place.

The second fact to know is that saturation is dated. An exposure amortizes: a credit being repaid frees capacity as it goes, and an underwriter knows, within a few weeks, when it will have room again. A queue on a saturated country is therefore not a closed door, it is a calendar nobody publishes and that can be asked for. Asking which month capacity frees up, rather than asking the same thing again in a loop, is what distinguishes an exporter that obtains a place in the queue from one that starts from zero at every call.

One must add an effect exporters underestimate and that turns against them: a limit obtained and unused is not free. It ties up capacity that will be missing to someone else, and often to themselves, when the next transaction comes along. Saturated portfolios are subject to reviews in which dormant commitments are cut, and the exporter that asked wide out of prudence finds what it has not used taken back, at precisely the moment it was about to use it. Asking for the capacity one will use, when one will use it, is portfolio behaviour and not modesty.

That leaves the ways out when the limit is genuinely closed, and there are three. Capacity can be sought elsewhere, with another market, in coinsurance or in excess, which means accepting that loss definitions will not be identical from one contract to the next. It can be sought at the public window where the transaction is eligible, which points back to the bounds of tenor, national content and classification examined elsewhere in this certification. It can finally be manufactured by changing the transaction itself, through a shorter tenor or a split amount. What does not work is waiting in silence, because a queue you do not chase re-forms without you.

The overall reading is that a refusal of capacity is not information about the buyer, and must above all not be treated as such. An exporter reading it as a risk signal sometimes walks away from sound business; one reading it correctly asks three questions, the release date, the existence of a tenor sub-limit, and the possibility of sharing, and often obtains in three weeks what it thought lost. Capacity is an administered resource, and administered resources are asked for in the terms of those who administer them.