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Africa’s Trade Credit and Investment Insurer www.ati-aca.org Political Risk & Credit Risk Insurance: The Next Frontier for African Reinsurers? 6 October,

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Presentation on theme: "Africa’s Trade Credit and Investment Insurer www.ati-aca.org Political Risk & Credit Risk Insurance: The Next Frontier for African Reinsurers? 6 October,"— Presentation transcript:

1 Africa’s Trade Credit and Investment Insurer Political Risk & Credit Risk Insurance: The Next Frontier for African Reinsurers? 6 October, th African Reinsurance Forum: Nairobi, Kenya Humphrey Mwangi Acting Chief Underwriting Officer African Trade Insurance Agency (ATI)

2 Africa’s Trade Credit and Investment Insurer Objectives of Presentation Part 1 I.PRI and CRI Defined II.The Market III.Political Risk Insurance (PRI) in Detail IV.Case Example Part 2 I.Credit Risk Insurance (CRI) in Detail II.Background to ATI III.ATI and Reinsurance IV.Case Example

3 Africa’s Trade Credit and Investment Insurer What is Political Risk Insurance (PRI)? Insurance against losses resulting from actions/inactions of governments Usually exclusions under normal insurance PRI risks are often outside the control of the parties to a project Taken out by exporters and cross-border investors & lenders

4 Africa’s Trade Credit and Investment Insurer What risks does it cover? Risks to cross border investment Expropriation, selective discrimination, forced divestiture, creeping expropriation, breaching investment agreements or guarantees, nationalisation, embargo and sanctions Risks to overseas assets Deprivation, forced abandonment, sabotage and terrorism, war damage, confiscation

5 Africa’s Trade Credit and Investment Insurer PRI cont’d Risks to international financing Transfer & convertibility, political violence, expropriatory acts, non- honouring of government guarantees, breach of contract Risks to finance programmes Wrongful calling of bonds Risks to contracts Frustration, repudiation, embargo

6 Africa’s Trade Credit and Investment Insurer PRI - Perception vs. Reality Sovereign PRI Map 2008 Malawi = Iraq = Afghanistan = Somalia South Africa = Botswana = Israel AON PRI Map 2008 Kenya = Malawi = Iraq = Iran Botswana = Somalia

7 Africa’s Trade Credit and Investment Insurer The Market - players Multilaterals ATI, MIGA, ICIEC Official/National Agencies OPIC, EDC, ECIC-SA, BECI The Private Market Chubb, Lloyds, Zurich, Sovereign

8 Africa’s Trade Credit and Investment Insurer The Market - size PRI Capacity Confiscation, Expropriation, Nationalization Contract Frustration Lloyds 840,000,000720,000,000 Private Insurers 477,500,000380,750,000 TOTAL 1,237,500,0001,040,750,000

9 Africa’s Trade Credit and Investment Insurer Familiar PRI Events Nationalization of oil companies in Southern America Forceful seizure of farms in Southern Africa cancellation of mining licenses in Central Africa

10 Africa’s Trade Credit and Investment Insurer Case Example #1 East African Energy Project ●Independent international energy producer sponsoring project to develop, transmit & distribute affordable electricity to rural and commercial end-users ●Project needed Ministry of Finance guarantee in respect of Tariff Equalisation Facility to be viable but that was against IMF rules ●Central Bank did not have the capacity to provide either a guarantee or a Letter of Credit to cover US$14.5 million worth of tariff reimbursements over three years ●ATI provided a three and half year Non-Honouring of Sovereign Obligation Insurance Policy in partnership with Africa Re

11 Africa’s Trade Credit and Investment Insurer Case Example #2 Political Violence XoL Treaty ●Post-election violence in Kenya led many individuals and businesses to incur huge losses. Such losses were uninsured (exclusions) ●ATI, working with leading local insurers, the Lloyds market, Africa-Re and Zep- Re, put together an XoL program ●PV cover now available in Kenya and some East African countries

12 Africa’s Trade Credit and Investment Insurer Case Example #3 ATI Reinsures MIGA ●In 2008, a UK investor contracted with Kenya’s power distribution company to supply geothermal power to help alleviate the country’s perennial power shortages ●MIGA a member of the World Bank Group, was approached by the investor to provide cover against the risk of Currency Transfer Restrictions, Expropriation and War & Civil Disturbance ●ATI provided reinsurance to MIGA

13 Africa’s Trade Credit and Investment Insurer End of Part 1 Q & A

14 Africa’s Trade Credit and Investment Insurer Objectives of Presentation Part 2  Credit Risk Insurance (CRI) in Detail  Background to ATI  ATI and Reinsurance  Case Examples  Benefits to Your Company

15 Africa’s Trade Credit and Investment Insurer Credit Risk Insurance (CRI) Insurance against non-payment Insolvency Protracted delay Repudiation – refusal to pay Conversion & transfer War & related disturbances Cancellation of import/export license

16 Africa’s Trade Credit and Investment Insurer CRI Classified Whole Turnover CRI Single Obligor CRI –Private buyers –Public buyers Lenders All Risks

17 Africa’s Trade Credit and Investment Insurer Who Can Benefit From CRI? Exporters Importers Banks Contractors Equipment suppliers Service providers

18 Africa’s Trade Credit and Investment Insurer Market Players Multilaterals e.g. ATI Export Credit Agencies e.g. CGIC Exim-banks Private insurers e.g. COFACE, Atradius, Euler-Hermes

19 Africa’s Trade Credit and Investment Insurer CRI & the Economic Crisis Banks’ low appetite for risk –Demand credit enhancement –Exporters/suppliers forced to provide financing – want CRI Hard times in the west - Exporters experiencing non- payment - Forced to sell on credit to stay in business

20 Africa’s Trade Credit and Investment Insurer Other Opportunities Resource growth e.g. oil & gas –stimulating economic activity Telecoms sector - Supply of equipment, service Regional integration –intra-regional trade Reconstruction Elections

21 Africa’s Trade Credit and Investment Insurer Background to ATI African institution – by Africans 4 Africa Vision “To transform Africa into a prime source and destination for trade and investment” Mission “To turn African risk into opportunity, through the provision of insurance and Financial products, in partnership with the private and public sector”

22 Africa’s Trade Credit and Investment Insurer That means? Mobilising public & private sector financial institutions to promote trade & investment in Africa Using combination of private sector experience & capital, and public sector clout & connections

23 Africa’s Trade Credit and Investment Insurer Why is ATI unique? Specialist insurer – Africa’s Lloyds? Preferred Creditor Status Deterrence Effect ●Member states’ obligation to make ATI whole for any losses they cause Member States’ stake in ATI enhances ATI’s abilities to avoid/minimize losses

24 Africa’s Trade Credit and Investment Insurer  ATI is the 2nd highest rated institution in Africa  Reassigned ‘A’ Stable Rating from Standard & Poor’s in June, 2009 for both:  Counterparty Credit Rating  Insurer Financial Strength rating ATI-ACA ATI Credit Rating

25 Africa’s Trade Credit and Investment Insurer Member countries BurundiBurundi Djibouti*Djibouti* D.R. CongoD.R. Congo Eritrea*Eritrea* Ghana*Ghana* KenyaKenya Liberia*Liberia* MadagascarMadagascar MalawiMalawi RwandaRwanda Sudan*Sudan* UgandaUganda TanzaniaTanzania ZambiaZambia Other members Africa ReAfrica Re AtradiusAtradius COMESACOMESA PTA BankPTA Bank SACESACE ZEP-REZEP-RE Interest from… Angola, Egypt, Ethiopia, Mali, Mozambique, Nigeria, Senegal, Seychelles, Zimbabwe  Open to all AU member states, non-African states, private corporations and other regional and international institutions  Current Members

26 Africa’s Trade Credit and Investment Insurer Objectives: 1.Leverage ATI’s line size and country limits to support large projects 2.Encourage public and private risk sharing in Africa 3.ATI can both buy from and provide reinsurance ATI-ACA ATI & Reinsurance

27 Africa’s Trade Credit and Investment Insurer ATI Reinsurance ATI: Relationship with Reinsurers Whole Turnover Trade Credit Insurance Political Risk Insurance and Medium Term Credit Insurance Atradius Re Quota Share Reinsurance Treaty. 60% Cession. Reinsurers include: Lloyd’s of London Syndicates; Sovereign Risk (Bermuda); Zurich (USA); Chubb; and Africa Re Facultative or Treaty Reinsurance as required. Risk Retention no less than 10%

28 Africa’s Trade Credit and Investment Insurer ATI’s Main Terms ●Maximum tenor 10 years ●No minimum transaction size ●Maximum line size (net exposure): - Political Risk: US$7.5 million - Credit Risk: US$3.75 million ●Indemnity: - Up to 100% (Political Risks) - Up to 90% (Commercial Risks) ●Price to risk. No subsidy to the private sector

29 Africa’s Trade Credit and Investment Insurer Case Example #1 A Japanese Supplier in E. Africa ●Japanese supplier of telecom equipment has made it policy to supply on credit only with insurance cover ●ATI is providing comprehensive non-payment cover ●ATI has sourced reinsurance support from Africa-Re and will approach Lloyds if higher exposure is requested ●Japanese supplier takes comfort in ATI being on the ground, its S&P rating and strong reinsurers behind it

30 Africa’s Trade Credit and Investment Insurer Case Example # 2 An Israeli Telecom in DRC ●The telecommunications sector in the DRC has seen rapid growth in recent times, attracting many players into the scene ●An Israeli company, working with a local partner, was keen to maintain market share and needed to invest in cellular base stations across the country ●ATI was approached for cover and responded with its first Single-Obligor CRI policy to cover the contract in the even of payment default

31 Africa’s Trade Credit and Investment Insurer ●Broad reach across Africa ●Ability to attract more reinsurance capacity to Africa ●ATI’s preferred creditor status & ‘A’ rating from S&P ●Access to global partners like SACE, Africa Re, OPIC, AfDB, Atradius, MIGA, Lloyd’s ●Added risk assessment expertise (global network) Benefits to Your Company

32 Africa’s Trade Credit and Investment Insurer End of Part 2 Q & A

33 Africa’s Trade Credit and Investment Insurer Tel +254 (0) ATI Contacts


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