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Premium
Pricing:
Pricing of guarantee products and
of related PEFG services will be central to PEFG success. This will require
an ongoing assessment of current revenues; potential market; demand sensibilities;
potential follow-on business. Also, recognition by PEFG stakeholders and
management that the public policy purpose of PEFG is to make a net positive
and sustainable contribution to Pakistan's export performance.
PEFG must be in a financially sound position i.e. actuarially self-sustaining,
to permit itself to promptly pay, in full, any and all repayment guarantee
claims, once submitted by customers with accompanying documentation and
proof.
PEFG premiums will tentatively range from a high of 4% (single transaction)
to 1% or less for repeat customers, without claims experience. PEFG premiums,
as envisaged, are thus within the range of 'comparable products'.
PEFG will also levy a 0.25% fee, per transaction, with an initial maximum
charge of 10000 Pakistan Rupees, to defray administrative overhead.
Underwriting Assumptions:
These will be central to PEFG's viability i.e. self-sustainability. Clearly, a new product and institution, such as PEFG, will be charting a new direction and can expect to encounter challenges.
Portfolio Risk Management:
PEFG's operating principle will seek a 10:1 underwriting-to-paid in equity ratio i.e. PEFG targeted capitalization of US$10 Million should support as much as US$100 Million in guarantee underwriting cover at any point in time, excluding ceding of portfolio to reinsurers.
PEFG portfolio will be subject to continuous risk management techniques, including notional portfolio exposure ceilings in respect of:
- Buyer sector;
- Supplier sector;
- Country of destination;
- Public sector, private sector;
- Payment type;
- Payment tenor;
- Collateral.
As a general operating principle, PEFG portfolio notional ceilings per major category will not exceed 10% of leveraged paid-in capital (10:1 ratio).