Single risk credit insurance
Credit insurance covering a single buyer or a single transaction, often for a large amount and a long tenor, as opposed to a whole turnover policy covering all of a supplier's sales.
Single risk credit insurance covers the non-payment risk attached to a single buyer or a specific transaction: an equipment contract payable over several years, a prefinancing granted to a producer, a receivable on a major distributor. It contrasts with the whole turnover policy, which covers all of a supplier's receivables on all its customers and so pools risk within the insured's portfolio. Because it isolates one risk, it is priced on the analysis of that single debtor, its country and the transaction structure, security, schedule, bank guarantees. It can cover amounts and tenors that whole turnover policies do not accept, often up to several years, and it is widely used by banks and commodity traders. In return, it concentrates risk for the insurer, which gets no pooling within the contract, and it is more exposed to adverse selection, since the insured chooses precisely the risks it wants to transfer. Underwriters respond with a retained share borne by the insured, often 10 to 20 percent, which keeps it interested in a good outcome.
Textbook case: a European manufacturer sells 25 million euros of turbines to a private Latin American power producer, payable in six semiannual installments. It insures that single receivable on a single risk basis at 90 percent, retaining 10 percent itself, for a premium based on the buyer's rating, the country risk and the three-year tenor.
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