Credendo’s country risk assessment

Credendo’s mission is to support trade relations. Credendo provides customised solutions of insurance, reinsurance, guarantees, bonding and financing related to domestic and international trade transactions or investments abroad. Credendo protects companies, banks and insurance undertakings against credit and political risks or facilitates the financing of such transactions.

To this end, a most accurate quantitative and qualitative assessment of those risks is fundamental. The result of this analysis is, for each country and the various types of insured transactions, the basis for pricing, country risk limits and, if necessary, special conditions for risk acceptance.

  1. Export Transactions
    1. Political Risk
    2. Commercial Risk
  2. Direct Investments
    1. Political Violence Risk
    2. Expropriation Risk
    3. Currency Inconvertibility and Transfer Restriction Risk


For the various types of transactions covered by Credendo such as domestic and international sales of goods or provision of services, consignment contracts, pre-financings, guarantees, etc., Credendo takes into account all causes of loss: debtor default and political and assimilated risk events.

1.a. Political Risk

Political and assimilated events encompass all events assuming a case of force majeure for the insured or the debtor/obligor being foreign exchange shortage, political unrest such as war, revolution or riot, natural disaster and arbitrary government action. Countries are classified into seven categories (from 1 to 7) reflecting the intensity of risks arising as a result of political and assimilated events. Category 1 includes those countries for which the risk is considered the lowest and category 7 contains those countries with the highest likelihood of risks being caused by political and assimilated events. The classifications are reviewed on a regular basis. Updates are possible at any time if necessary.

Short Term:

The short-term political risk classification measures the likelihood of a risk caused by political and assimilated events connected to cross-border transactions with a risk horizon of up to 1 year. In order to assess this risk, Credendo uses a quantitative model, essentially focusing on the evolution of the liquidity situation of the debtor/obligor countries. The aim is to assess the capacity of a country to honour its short-term payment obligations. The model closely follows any deterioration or improvement in the situation of the debtor countries. For that reason, it is based on a limited number of indicators that allow frequent updates and the relevance of which has been historically tested. Three standard liquidity indicators, usually at the core of such models, are short-term external liabilities, foreign exchange reserves and the current account balance. The model also includes an indicator for refinancing possibilities of the country and other information that is not captured by standard economic indicators. Finally, a risky short-term political situation (e.g. war or embargo) or other relevant factors are taken into account.

Medium/long Term:

The medium-/long-term political risk classification measures the likelihood of a risk caused by political and assimilated events connected to cross-border transactions with a risk horizon beyond 1 year. Credendo developed a quantitative model measuring especially the countries’ solvency. It combines an assessment of the economic and financial situation, an assessment of the political situation and a payment experience analysis for each country. The assessment of the financial situation is based on external debt ratios, for which critical values have been fixed based on econometric estimates. Some liquidity indicators such as the level of foreign exchange reserves are added. A country's economic situation is evaluated using three sets of indicators: indicators of economic policy performance such as fiscal and monetary policies, external balances and structural reforms; indicators reflecting a country's growth potential such as savings and investment quotes and growth performances; and external vulnerability indicators such as export diversification and aid dependency. Risks related to the political situation are also based on quantified indicators. Payment experience data used in the model are from both Credendo and other OECD credit insurers, reflecting the experience on new and existing commitments as well as under rescheduling agreements concluded in the Paris Club. Finally, elements that are not captured by the model are taken into account.

For export credits covered by Credendo – Export Credit Agency, the premium category for risks caused by political and assimilated events related to medium/long term export credits is largely dependent on Credendo – Export Credit Agency’s obligations within the framework of the OECD Arrangement on Officially Supported Export Credits. Within this Arrangement, minimum premium rates for the insurance of medium-/long-term country risk for about 70% of the countries in the world are decided upon by a Group of country risk experts representing the different export credit agencies. Credendo is presiding these meetings and is running the country risk model within this Group. In general, Credendo – Export Credit Agency’s premium classification is aligned with the OECD’s premium classification1 but its Board of Directors can always decide on a higher premium rate if it considers the risk to be higher. Credendo’s country cover policy is exclusively based on its own assessment of the medium/long term political and assimilated risks, with Credendo – Export Credit Agency’s Board of Directors always taking the final decision.

Special Transactions:

The premium category set for political risk related to (special) cash transactions is based on Credendo’s classification for respectively short-term and medium-/long-term political risks related to credit transactions.

1.b. Commercial Risk

The assessment of the risk caused by default of the debtor consists primarily of a case-by-case assessment of the risk on the debtor/obligor and the trade sector and country it is active in. Some macro-factors such as a sharp currency depreciation, high real interest rates, an economic recession or a context of widespread corruption, however, have an influence on the business environment, thereby affecting the payment capacity of all debtors/obligors in a country.

The model used by Credendo for the assessment of such macro-commercial risks, named systemic commercial risk, is composed of three types of indicators:

  • economic and financial indicators affecting all companies in a country due to their impact on corporate results and balance sheets (e.g. volatility in exchange rates and local financing costs, economic cycle, inflation,...);
  • indicators reflecting the country's payment experience due to debtor default;
  • indicators characterising the institutional context in which local companies operate (e.g. corruption, quality of legal system).

Category A includes countries presenting a low commercial risk, category B contains those for which the risk is considered 'normal' and category C comprises the countries representing an above-average risk. The systemic commercial risk classification is updated regularly and is subject to immediate review if necessary.


In the framework of the assessment of risks related to investments abroad, Credendo also takes into account political and assimilated risk events; such risks – for the purpose of the country rating – being: Expropriation, Political Violence, and Currency Inconvertibility and Transfer Restriction:

2.a. Political Violence Risk

Political Violence includes all violent act(s) undertaken with a political objective; this concept is broader than ‘war’ and includes i) ‘terrorism’ (political, religious and ideological objectives) and ii) political violence damage (damage to material assets as a result of political violence); for the purposes of analysing the political violence risk, types of business interruption as a result of political violence damage are included.

In order to assess the political violence risk, Credendo looks at the actual levels of internal violence in and external conflict with a country, but also at the conflict potential that arises from (lingering) internal and external tensions, frustration and dissatisfaction.

2.b. Expropriation Risk

The risk of expropriation encompasses all discriminatory measures taken by a host government which deprive the investor of its investment without any adequate compensation; for the purpose of analysing the expropriation risk, events of embargo, change of (legal) regime and denial of justice are included.

In order to assess the expropriation risk Credendo not only assesses the risk attached to expropriation as such, but also the functioning of legal institutions in the host country and the probability of a negative change in attitude towards foreign investments.

2.c. Currency Inconvertibility and Transfer Restriction Risk

The currency inconvertibility and transfer restriction risk refers to the inability to convert and transfer out of the host country any funds related to the investment.

The assessment of the currency inconvertibility and transfer restriction risk is based on the same risk drivers as the assessment of political and assimilated risks related to medium-/long-term trade transactions.

1The premium classification OECD is the country risk classification of the Participants to the Arrangement on Officially Supported Export Credits (the "Arrangement"). They are one of the most fundamental building blocks of the Arrangement rules on minimum premium rates for credit risk. The country risk classifications are meant to reflect country risk. Under the Participants’ system, country risk is composed of transfer and convertibility risk (i.e. the risk a government imposes capital or exchange controls that prevent an entity from converting local currency into foreign currency and/or transferring funds to creditors located outside the country) and cases of force majeure (e.g. war, expropriation, revolution, civil disturbance, floods, earthquakes). More details on Premium classification OECD can be found on


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