Premium Agreement

The OECD Premium Agreement (called the Knaepen Package) entered into force on 1 April, 1999. The purpose of common premium principles is to achieve a level playing field among OECD exporters by seeking convergence on the pricing of officially supported medium-term and long-term export credits.

ECAs of the OECD member countries adhere to the minimum premium rates for sovereign and country credit risks, which are based on jointly agreed country risk classifictions. Countries are classified into eight categories 0-7. Minimum premium rates are used for categories 1-7. High income OECD countries as classified in category 0. The level of country risk is considered to be negligible in these countries, and therefore no minimum premium rate is applied to them. Other countries that are deemed to be of a similar risk level as High Income OECD countries may also be classified in category 0.

The premium rates reflect the risks covered: the longer the risk period and the poorer the country, the higher the premium charged. In the long run, the premium income should be sufficient to cover the costs of guarantee activities.

The country risk classification method is based on an econometric model using quantitative indicators, e.g. each country's financial and economic situation and the payment experience. Qualitative factors, e.g. foreign and domestic policy, are also taken into account in the final classification of countries.

However, each ECA decides individually on its own risk-taking and country cover policy in accordande with its own risk assessment. The agreement does not require ECAs to change their own country classification methods or their ways of collecting premia, as long as the minimum premium benchmarks are adhered to. The agreement determines the minimum premia for political and sovereign risks. Commercial surcharges are usually added to the political/sovereign base rates.