Nippon Export and Investment Insurance (NEXI) will soon offer dollar-denominated trade insurance, available to various Japanese banks and trading houses, offering protection from foreign exchange swings and boosting infrastructure-related exports.
Trade insurance has been available in Japan since 1950, but it was only offered in yen. However, government-owned insurer NEXI is now in negotiations to offer dollar-denominated insurance with several firms, with the first contracts likely to be signed in October of this year.
Premiums will remain based on a percentage of payouts in the event of losses under the new agreement.
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Despite most trade insurance being denominated in yen, most of Japan’s international loan contracts are in US dollars. Over ¥900 billion (US$8.05 billion) of the almost ¥1 trillion in loans insured by NEXI in 2016 were in dollars.
Trade insurance protects companies in case overseas loans turn insolvent due to unforeseen circumstances. Insured businesses will be compensated for damages as long as qualifying conditions are met.
According to NEXI, it hopes that the new offering will help reduce financial institutions’ concerns, helping increase lending abroad. This is in line with the Japanese government’s efforts to promote infrastructure exports, such as railways and power plants. Increasing the supply of risk money will help Japanese firms operate easier in the international community, said the insurer.
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