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Israeli short-term credit worthiness is on the decline, company's survey shows

Companies griped about slow December sales compared with November, and December 1999

The Solvency index compiled by Clal Credit Insurance once a month indicates that the ability of Israeli companies torepay debt deteriorated by 1.5% in December.

The index was compiled on the basis of the average risk in 1999, which served as a 100-point anchor. The December 2000 index registered 106.3 points, as opposed to the November index, which showed 107.9 points.

The deterioration in solvency is apparently due to the prolonged influence of political and security issues that have plagued mainly the tourist, construction and infrastructure industries.

Thousands of businesses were included in the survey sample from a range of industries, including electronics, construction, food, communications, and chemicals.

Clal Credit Insurance CEO Uri Levy said that December is typically a high-growth month characterized by end-of-year clearance sales. Not in 2000, when companies complained of lower sales compared to November, and compared to December 1999. The decreases were felt mostly in the tourism, infrastructure, food and computers sectors, Levy said.

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Credit Insurance 101

Companies that take out credit insurance are essentially insuring themselves against default by their own customers. Each such customers is then assigned a credit limit by the insurer. If a customer fails to pay its debt to the insuree company (that bought insurance), the insurer is therefore obliged to honor the debt up to the pre-agreed ceiling. Then the insurer chases the defaulting customer.

The insurance company do not customarily insure the entire customer portfolio, nor ever cover the entire obligation of each customer.

Thus insured companies typically operate within a partial coverage setting.

The insurance company will typically shrink the per-customer credit lines during rough economic times.