RU

2.

EXPORT SUPPORT IN 2016

The positive cooperation experience, financial stability and commitment to constant improvement make the Agency a reliable partner for Russian exporters. EXIAR’s participation in conferences, business missions and other events promotes positive brand awareness and helps the Agency better understand the needs of its customers.


19%

share of support to power engineering in the insurance capacity provided by EXIAR

28.5%

share of exports to Western Europe in total exports supported by the Agency

EXIAR’s integration into the REC Group produced a synergetic effect: the exporters who seek loan support from Eximbank of Russia or non-financial support from the REC now obtain all the relevant information on the Agency’s insurance products and may use any of them without additional time or institutional costs.

Consistent development of the Agency and raising the awareness among potential exporters led to an increase in EXIAR’s key operating results in the reporting year. The amount of support provided by EXIAR in 2016 reached USD 8.68 billion, a 32% increase compared to 2015. The number of exporters supported grew by more than 50%; notably, around three fourths of them were the Agency’s first-time customers.

In terms of regional breakdown of exports supported, Western Europe was the main exports destination. In particular, 2016 saw considerable growth of exports to Germany, Italy, Poland and Switzerland. Other major destinations include the CIS, Eastern Europe and Asia. The amount of supported exports to Latin America also increased in the reporting period (the share of exports to Brazil and Uruguay combined amounted to 14%, which placed the two countries among the leading destinations of exports supported by the Agency in 2016); the same applies to the amount of exports to Japan and the US. In 2016 EXIAR supported exports to 87 countries across the world.

In 2016 the Agency almost doubled its insurance capacity (maximum limit of insurance under its contracts). The increase was mostly driven by the signing of an insurance agreement for the Yamal LNG (see “Developing the product line”).

The regional breakdown of the insurance capacity provided shows that the Agency’s credit risk diversification policy adopted in 2015 has remained unchanged.

Signing the insurance agreement on the Yamal LNG project had a considerable impact on EXIAR’s financial results. Accrued insurance premiums, an indicator that had already been steadily increasing, spiked 11-fold compared to the previous year and amounted to RUB 26,508 million.

Changes in the amount of insurance support provided (million USD)

2013 2014 2015 2016 5,000 0 10,000 2,259 3,897 6,573 8,683

Changes in the number of exporters supported

2013 2014 2015 2016 200 100 0 300 263 254 233 169 175 112 59 50 Number of exporters supported Number of insurance contracts signed

Number of insurance contracts signed

2016 Western Europe Eastern Europe Latin America North America Africa CIS, Georgia Asia Other 28.5% 13.9% 11.2% 17.4% 2% 21% 5.7% 0.3%

Regional breakdown of insurance capacity provided (%)

8% 2016 CIS Russia Latin America Africa Asia Eastern Europs Western Europe North America 21% 21% 20% 13% 11% 2% 3%

Insurance capacity of EXIAR by industry (%)

2016 Power engineering Aircraft industry Agricultural sector and food industry Metal industry Railway industry Chemical industry Ground transportation Military-industrial complex Fertilizer industry Agricultural engineering Electronic engineering Fuel Otherотрасли 19% 13% 12% 10% 7% 7% 6% 6% 4 2 2 2% 7%

Amount of insurance capacity provided
(million RUB)

2013 2014 2015 2016 0 500,000 400,000 300,000 200,000 100,000 30,438 85,880 237,603 454,172

Acсrued insurance premium
(million RUB)

2013 2014 2015 2016 0 30 000 20 000 10 000 249 860 2 395 26 508

2.1

EXIAR’s product line

The Agency has created a set of state-of-the-art insurance support instruments that meet the needs of Russian investors, exporters and the banks that finance them. In addition, as the result of practical interaction with customers and partner banks, a number of customized solutions were developed to embrace their specific needs, which enabled the Agency to cover most of the demand for export insurance services.

EXIAR’s product line

Supplier credit insurance

Insurance coverage is provided for separate export contracts with deferred payment

Short-term receivables insurance

Insurance coverage is extended to exports of similar products to multiple foreign buyers

Buyer credit insurance

Insurance coverage is provided to both Russian and foreign banks for loans obtrained by foreign buyers for the purchase of Russian export products

Confirmed letter of credit insurance

Insurance coverage is provided for letters of credit issued by a foreign bank for the purposes of paying for the exports and acknowledged by the confirming bank

Export factoring insurance

Insurance coverage against the credit risks of the factor to whom the rights to receivables under export contracts with deferred payment were transferred

Investment insurance

Insurance coverage is provided for Russian investments, both in the form of equity and loans to enterprises for the purposes of setting up production facilities abroad

Export working capital credit insurance

Insurance coverage is provided for working capital loans obtained by exporters, including those under a pledge of receivables under export contracts

Reinsurance

The Agency may take or cede risks in reinsurance basing on the insurance rules applied by the reinsurer with which the reinsurance agreement is signed, and independently define the procedure and terms of ceding the risks taken by the Agency to the reinsurer

~900
requests for exports support received by EXIAR in 2016

The list of companies applying to the Agency for insurance support currently includes both large exporters and SMEs.

In 2016 the Agency developed a new product — insurance of loans for financing projects on export-oriented production setup — that will be described in greater detail below.

During 2016, EXIAR received more than 900 requests for insurance support, 33% of which were satisfied in the reporting period.

Breakdown of requests for insurance by product

Your browser does not support SVGs

2.2

Supporting SME exporters

One of the Agency’s priorities is supporting export-oriented small and medium enterprises. In 2016 the Agency provided insurance support to 122 smaller exporters from 42 subjects of the Russian Federation. The total amount of insurance support exceeded USD 170 million, doubling the 2015 numbers. The number of exporters supported grew at a similar rate.


The export projects of SMEs are characterized by huge industry and geographical diversity: the exporters supported in the reporting year represented 15 industries, and the exports insured by the Agency went to 38 countries across the world.

The specialized instruments that were further improved in 2015 considerably facilitated the access of small and medium enterprises to financing, which is an essential factor of export contract execution. These instruments have been very popular among the exporters: in 2016 almost half of the total insurance support amount (USD 79 million) accounted for projects implemented under EXIAR’s two currently available specialized programs: export working capital credit insurance program for SMEs and export factoring insurance program for SMEs. As of late August 2016, 44 credit institutions were the Agency’s partners, including both systemically important federal banks and regional credit institutions.

In 2016 the Agency prepared a series of changes aimed at streamlining the procedures that are part of business processes related to the conclusion of insurance contracts. Further, an additional set of specialized software solutions was developed on the basis of the Agency’s current product line, tailored to the specific features of export-oriented SMEs and meeting the current needs of this segment of exporters to the maximum extent possible in terms of mitigating the foreign contractor default risks in export projects.

During the reporting period, the Agency’s representatives participated in training sessions and other joint events hosted by the partner banks and OPORA Russia, a Russian non-governmental organization for small and medium business. The main objectives of such events are to inform small and medium enterprises on the possibility of getting insurance support for foreign market entry and provide specific training for banking employees on how the Agency’s products may be used in exports financing.

It is expected that in 2017 new programs will be introduced and changes to the existing specialized support instruments will be agreed upon. In addition, a pilot project for online insurance of SMEs against international trade risks will be launched. The project is expected to increase the availability of support and speed up its provision in every region of Russia.

122
smaller exporters received insurance support in 2016
>170
million USD — total amount of insurance support
2 -fold
increase of total amount of insurance support vs 2015
15
industries were represented by the exporters supported in the reporting year
42
federal subjects of the Russian Federation were represented by the exporters who received exports support

exports geography, as claimed by the exporters

Eastern Europe Latin America Western Europe Cis, Georgia Asia

2.3

Supporting large exporters


Judging by the breakdown of the requests for insurance support received in 2016, short-term receivables insurance remains the Agency’s most popular product. In the reporting period EXIAR continued to expand exporter support in this area: the pool of the Agency’s customers using this product was broadened to include another 16 major exporters (in particular, the Vyksa Metallurgical Plant JSC and Ferrotec Nord LLC) and a significant number of SME exporters. This product is primarily of interest for the companies that regularly deliver their products to foreign contractors with deferred payment of up to one year.

As was the case in the previous year, in 2016 short-term receivables insurance was most popular among exporters of metal engineering and chemical products, manufacturers of cars, trucks and harvesters, pharmaceutical companies and agricultural producers. The Agency’s client portfolio was expanded to include manufacturers of household appliances and electronics, automotive components, paper and FMCGs. Over the past year, the Agency’s active customers considerably expanded their insurance portfolios (in particular, the coverage for Solikamskbumprom JSC, Russian Profile LLC and Arnest OJSC was significantly expanded).

The geography of exports for which insurance coverage through the short- term receivables insurance instrument was requested remained quite diverse. It included the countries of Europe, Latin America, CIS and Asia. In addition, insurance contracts for the deliveries of machinery to South Africa and Iran were signed in 2016.

In 2016, aiming to support Russia’s major manufacturers, the Agency signed nine supplier credit insurance agreements. The list of exporters supported through this insurance product was extended to include new customers.

In particular, the Agency signed an insurance contract with the United Wagon Company LLC providing for the insurance of railcar deliveries to the Tejarat Kushesh Sepahan Co railway transportation company, which became one of the Agency’s pilot projects for supporting Russian non-commodity exports to Iran. EXIAR provided insurance coverage to EVRAZ United West Siberian Metallurgical Plant OJSC in relation to the the delivery of 20.9 tons of railroad rails to the Algerian INFRARAIL state-owned track infrastructure company.

The product is most interesting for the following categories of exporters

1

Russian manufacturers with extensive exports experience (the list of the Agency’s new customers includes Kama Trading House LLC and Novosibirsk Plant Ekran JSC)

2

International companies that have production facilities in Russia and wish to expand the sales geography of the goods produced in the country (the list of Agency’s customers includes international manufacturers of tires and household appliances who have localized their production in Russia, such as Renault Russia CJSC, Pirelli Tyre Russia LLC and Samsung Electronics Rus Company LLC)

3

Budding exporters

+16
new exporters were added to the pool of the Agency’s customers, in terms of short-term receivables insurance

Supporting the exports of Sukhoi Superjet 100 aircraft

Sukhoi Civil Aircraft JSC
15

AIRCRAFT

will be supplied under the export contract of Sukhoi Civil Aircraft

In 2016, with the insurance coverage provided by EXIAR, the delivery of 3 aircraft was financed.

86.9

million USD

amount of exports supported in 2016

The deal ensured the entry of Sukhoi Civil Aircraft to the highly competitive European market, which offers additional possibilities for attracting potential customers and promotes a positive image of Sukhoi Superjet 100 aircraft.

Supporting the exports of the shipbuilding industry products

Krasnoye Sormovo Plant PJSC
8

oil tankers

will be delivered under the contract

The deal covers the exports of up to 8 RST-27-2 oil tankers manufactured by the Krasnoye Sormovo Plant PJSC in compliance with the current environmental regulations (in particular, the requirements of MARPOL).

2

oil tankers

were delivered in 2016

24.4

million USD

amount of exports supported in 2016

The financing terms were developed by the experts of EXIAR, Sberbank and the legal adviser of the creditors in the deal taking into account global best practices in sea craft exports.

As part of its support to aircraft engineering as a strategically important industry, the Agency provided insurance coverage for the financing of the delivery of Sukhoi Superjet 100 aircraft to the Irish CityJet airline.

Your browser does not support SVGs

Supporting exports in priority industries [i] has been another focus of the Agency


At year-end 2016, a significant part of exports of the sector’s products in terms of value (around 40%) was facilitated by EXIAR. The Agency cooperates with almost every major Russian manufacturer in the said industries. Notably, as regards the car industry, the Agency’s insurance coverage is requested by both domestic companies and international manufacturers who have opened production facilities in Russia.

Partnership with financial institutions

In 2016, the Agency continued to effectively cooperate with Russian and foreign banks and international financial organizations. The jointly implemented projects are indicative of the fact that the banks remain interested in further promoting export financing. As can be seen from the results of the reporting year, there is still great demand for the insurance products in which financial organizations act as insured, as well as the products where banks act as beneficiaries.

>40%
of the total value of industrial sector products was exported with the assistance of EXIAR

Since 2015 an experimental program has been underway on the provision of financing by the Bank of Russia to credit institutions under a pledge of receivables on loan agreements secured by the Agency’s insurance coverage. The experiment program provides more affordable financing and has a positive effect on the support of Russia’s export-oriented enterprises as an incentive for actively developing the financial support of exports.

2016 was a productive year in terms exploring a new format of cooperation — the possibility of structuring loans as syndicated loans. The Agency’s participation in such projects provides an opportunity for financial institutions to use advanced solutions in exports financing.

An example of the effort made in this area was the deal for the provision of a syndicated loan by Promsvyazbank and Eximbank of Russia to the Cuban BANCO INTERNACIONAL DE COMERCIO S.A. with 100% insurance coverage provided by EXIAR to enable the discharge of the financial obligations under the contract signed between KAMAZ PTC LLC and Tecnoimport, a Cuban enterprise exporting and importing technical goods.

As part of the Agency’s cooperation with VTB bank, a RUB 7 billion credit insurance agreement was signed for Atomstroyexport JSC to enable the execution of the contract for the construction of the Kudankulam nuclear power plant in India. The agreement was signed under EXIAR’s special insurance program for major mechanical engineering companies. The Agency’s participation enabled Atomstroyexport – one of the largest contractors in Russia’s nuclear industry – to minimize costs related to contract execution due to the advantageous terms of the loan provided by VTB Bank which involved using export financing tools.

In June 2016, with EXIAR’s participation, a deal was executed between Eximbank of Russia and Tsesnabank (Kazakhstan). The parties signed an agreement on the provision of financing worth RUB 1.5 million to Kazakhstan’s Vektor Plant for the purposes of purchasing the products of the Russian agricultural machinery manufacturer Rostselmash. The risks associated with the loan agreement were insured by the Agency.

Developing the product line

Being committed to constant improvement and is attentive to the changing needs of its contractors, EXIAR has prioritized the upgrade of the existing insurance products and the development of new ones. For example, working capital financing insurance — a product that was initially aimed at smaller exporters — was subsequently adjusted in line with the priority to support the engineering industry so that it can now be used for Russia’s large enterprises.

In 2016, based on the requests received from Russian companies and banks, EXIAR developed a new product aimed at providing insurance support for investment projects related to establishing new export-oriented production facilities and developing the existing ones. The product was developed with the assistance of key actors of the Russian financial market which made it possible to take into account most of the insurers’ needs and the particularities of operations of the leading commercial banks in terms of financing integrated investment projects.

The new product became operational on 21 March 2016 as part of amending Decree 964 of the Russian Government “On the procedure of export credits and investments insurance against entrepreneurial and political risks”.

Yamal LNG gas production, liquefaction and shipping integrated project

In 2016 EXIAR provided insurance coverage for the financing Yamal LNG project. The Yamal LNG was the first deal implemented using the Agency’s new product — insurance of loans for financing the startup of export-oriented production facilities.

Under the Yamal LNG project, a plant will be built for the production of liquefied natural gas (LNG) with an annual output of around 16.5 million tons.

The project is strategically important for Russia, since it will result in a considerable increase in exports and in the share of Russian LNG in the international market. In addition, it will facilitate the development of transport and social infrastructure on the Yamal peninsula. The project includes building transport infrastructure, in particular, a sea port and Sabetta airport. The project will help broaden the commercial use of the Northern Sea Route, and procure orders for a number of Russia’s industries.

Sberbank and Gazprombank, with the insurance support from EXIAR, were the first creditors for the project, which made it possible to keep up the pace of construction and make the process of agreeing the financing terms with foreign creditors faster. The deal was unprecedented in the history of contemporary Russia in terms of the volume of foreign financing. The total amount of debt financing is equivalent to USD 19 billion, with over USD 12 billion provided by foreign creditors. The project is implemented through project financing using unique approaches to risk structuring that have never been applied in any of similar deals.

926

BILLION М 3

is the amount of proved and prospective reserves of gas of South-Tambeyskoye gas field, under the PRMS standards.

Best deal 2016, according to Euromoney’s Trade Finance, a reputable international magazine.

Insurance coverage was provided by the export credit agencies: SACE (Italy), Bpifrance (former COFACE, France).

16.5

million tons annually

the capacity of the plant in the South-Tambeyskoye gas field

The project was initiated by leading Russian and foreign oil and gas companies — Novatek OJSC, Total S.A., China National Oil & Gas Exploration and Development Corporation (a subsidiary of CNPC).

33.6

billion USD

the project’s total financing needs

Debt financing by major foreign state-owned and commercial banks: China Development Bank (China), the Export and Import Bank of China (China), Intesa Sanpaolo (Italy), JBIC (Japan).

In 2016 EXIAR provided insurance coverage for the financing Yamal LNG project. The Yamal LNG was the first deal implemented using the Agency’s new product — insurance of loans for financing the startup of export-oriented production facilities.

2.4

Cooperation with foreign ECAs

International cooperation implies both joint implementations of projects and experience and information exchange, as well as assistance in the claim settlement. As before, in the reporting year the Agency focused on furthering the cooperation with its traditional partners and seeking new formats of multilateral cooperation.

In 2016 EXIAR developed the concept of roadshows — a new format of presenting the Agency’s opportunities and toolkit abroad. The new format implies a series of meetings with the key actors, including major companies, banks and local public agencies. As part of the pilot projects the Agency held roadshows in Indonesia and Iran that helped establish useful business contacts and lay the groundwork for future cooperation.

Cooperation with foreign ECAs

With the growth of the support volumes and portfolio diversification, EXIAR pays more attention to the delivery of international projects with involvement of foreign partners. International projects can be efficiently implemented largely thanks to such instrument as reinsurance. This instrument enables the parties to distribute risks among several ECAs or commercial insurers. The Agency, acting within its authority, can reinsure a portion of risks under the insured projects or provide reinsurance coverage to foreign ECAs and commercial insurers, provided that the Russian component forms a part of the project price.

The Agency also continues to develop cooperation with foreign partners to provide joint insurance support to Russian enterprises operating through their foreign trading houses. This scheme of cooperation offers the insurance coverage in those jurisdictions where EXIAR is unable to enter into a direct agreement. Totally, REC Group entered into more than 20 cooperation agreements with foreign ECAs and commercial insurers. In 2016, it signed:

  • Cooperation Agreement with EIAA (Armenia). The objective of the agreement is to develop the strategic partnership with the Export Insurance Agency of Armenia and determine the format of parties’ cooperation for sharing experience and expertise in the future.
  • Facultative Reinsurance Agreement with Asuransi Asei (Indonesia) signed in the fields of the 11th Session of Indonesia- Russia Joint Commission on Trade, Economic and Technical Cooperation. Under the Agreement, EXIAR and Asuransi Asei can provide reinsurance coverage both within their own countries and under the joint projects in other countries.
  • Framework agreement for support of Japanese companies’ subsidiaries in Russia with NEXI, Japanese ECA. The agreement was a result of EXIAR’s and NEXI’s mutual interest in creating an effective mechanism of joint support to Russian subsidiaries of Japanese companies that export goods and services from Russia to other countries.

In March 2016, Agency held the first seminar at the level of experts as part of the BRICS ECAs Forum. This format of cooperation was created in 2015 at EXIAR’s initiative on the basis of the Memorandum of Understanding on Cooperation which was signed with other ECAs of member countries in the fields of 2014 BRICS Summit in Fortaleza (Brazil).

The forum contemplates annual meetings both at the level of ECAs CEOs and at the expert level and discussion of topical challenges and issues throughout the year. Similar format of cooperation is planned to be organized among ECAs of EAEC member countries. The Agency’s employees are members of the working group addressing the matters of financial support to exports within the Union. It was agreed at team’s meetings, among others, to create EAEC ECAs Forum, and the details of the relevant memorandum are being negotiated.



3
agreements with foreign ECAs were signed in 2016

In terms of protecting the interests of national exporters and promoting Russian exports in the foreign markets, developing the cooperation with foreign partners, including ECAs, commercial insurance companies and international organizations, has been a key focus area for EXIAR.

Partnership with international organizations

One of the requirements to EXIAR’s operations provided for in the Agency Strategy is to focus on the provisions of Organization for Economic Co-operation and Development (OECD) containing recommendations and control mechanisms relating to the state supported export crediting.

Throughout the entire reporting period, EXIAR’s representatives regularly acted as members of Russian steering committees and advisory bodies on the matters of the relationship between Russia and OECD and attended meetings of OECD task forces for state supported export crediting.

The Agency also provides expert support to Russian authorities on the matters relating to the World Trade Organization (WTO) regarding the state supported export crediting.

EXIAR takes a proactive approach to cooperation with foreign partners. It is a party to various multilateral cooperation platforms where it can share experiences and best practices with other ECAs to the fullest extent and in most efficient way. Regular meetings in such a format help REC Group to be kept informed of the key trends in the export insurance markets and to lay groundwork for practical cooperation and implementation of joint export projects.

Indeed, in 2016, EXIAR’s representatives were involved in negotiating the export crediting issues as members of the International Export Credits Working Group (IWG). IWG was formed at the initiative of the USA and China to promote the development of international principles of officially supported export financing in the face of various national interests and line with the best global practices.

Office in Belarus

Owing to considerable commodity turnover between Russia and Belarus, the portfolio of projects encompassed by the Agency’s insurance coverage and Russian exporters’ desire to deepen the cooperation with Belarusian partners, EXIAR’s office was opened in Belarus in 2015.

Following the REC Group’s strategic line of developing the international presence, the Agency continues to develop the functionality of its Belarusian Office as a comprehensive center of excellence opening new opportunities for REC Group in the Belarusian market.

The Office actively liaise with financial institutions, local authorities and subsidiaries of Russian companies in Belarus building up a network of existing and potential importers of Russian products. With the assistance of the Belarusian Office, in December 2016, the Strategic Cooperation Agreement was signed between REC and GPO Belenergo as part of joint delivery of projects in the sphere of development of the Belarusian power industry.

Since 2012, EXIAR is a member of the Prague Club and is active in sharing experience and information among ECAs. In 2016, there was a merger between the Berne Union and the Prague Club, thus enabling the Agency to more closely cooperate with the leading players on the credit insurance market.

The Office actively liaise with financial institutions, local authorities and subsidiaries of Russian companies in Belarus building up a network of existing and potential importers of Russian products. With the assistance of the Belarusian Office, in December 2016, the Strategic Cooperation Agreement was signed between REC and GPO Belenergo as part of joint delivery of projects in the sphere of development of the Belarusian power industry.

The Belarusian Office has the following functions

1

Assisting with implementation of Russian export projects in Belarus, including cooperation projects with involvement of Russian and Belarusian suppliers

2

Involvement in risk assessment for potential projects

3

Monitoring the current situation in the country

4

Involvement in preventing threatened insured events

5

Sustaining a positive brand image of the Agency and REC Group in general as a reliable and efficient partner

91
million RUB — insurance payments on loss occurrence claims in 2016

2.5

Settlement of losses

The growth of the insurance portfolio has expectedly entailed the growth of potential and realized losses making the loss settlement activity more intense.

For 2016, EXIAR received notices of insurance risk events for the total amount of RUB 5,246 million, of which RUB 3,301 million were either settled or revoked. Loss occurrence claims were received for the total amount of RUB 499 million and in 2016 the insurance payments stood at RUB 91 million.

Structure of outstanding losses as of 31.12.2016 (RUB million)

Your browser does not support SVGs

Dynamics of receipt of notices of insurance risk events (RUB million)

Your browser does not support SVGs

Insurance payments (RUB million)


Your browser does not support SVGs