objectives of presentation

Africa’s Trade Credit and Investment Insurerwww.ati-aca.org

Political Risk & Credit RiskInsurance:

The Next Frontier for African Reinsurers?

6 October, 200915th African Reinsurance Forum: Nairobi, Kenya

Humphrey MwangiActing Chief Underwriting Officer

African Trade Insurance Agency (ATI)


Objectives of PresentationPart 1

I. PRI and CRI DefinedII. The MarketIII. Political Risk Insurance (PRI) in DetailIV. Case Example

Part 2I. Credit Risk Insurance (CRI) in DetailII. Background to ATIIII. ATI and ReinsuranceIV. Case Example


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


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


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


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


The Market - players

Multilaterals• ATI, MIGA, ICIEC

Official/National Agencies• OPIC, EDC, ECIC-SA, BECI

The Private Market• Chubb, Lloyds, Zurich, Sovereign


The Market - size

PRI Capacity -2009

Confiscation, Expropriation, Nationalization

Contract Frustration

Lloyds 840,000,000 720,000,000

Private Insurers

477,500,000 380,750,000

TOTAL 1,237,500,000 1,040,750,000


Familiar PRI Events

• Nationalization of oil companies in Southern America

• Forceful seizure of farms in Southern Africa

• cancellation of mining licenses in Central Africa


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


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


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


End of Part 1

Q & A


Objectives of Presentation

Part 2 Credit Risk Insurance (CRI) in

Detail Background to ATI ATI and Reinsurance Case Examples Benefits to Your Company


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


CRI Classified

• Whole Turnover CRI

• Single Obligor CRI

– Private buyers

– Public buyers

• Lenders All Risks


Who Can Benefit From CRI?

• Exporters• Importers• Banks• Contractors• Equipment suppliers• Service providers


Market Players

• Multilaterals e.g. ATI• Export Credit Agencies e.g.

CGIC• Exim-banks • Private insurers e.g.

COFACE, Atradius, Euler-Hermes


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


Other Opportunities

Resource growth e.g. oil & gas– stimulating economic activity

Telecoms sector- Supply of equipment, service

Regional integration– intra-regional trade

Reconstruction

Elections


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”


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


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


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


Member countriesMember countries• Burundi Burundi • Djibouti*Djibouti*• D.R. CongoD.R. Congo• Eritrea*Eritrea*• Ghana*Ghana*• KenyaKenya• Liberia* Liberia* • MadagascarMadagascar• Malawi Malawi • RwandaRwanda• Sudan* Sudan* • Uganda Uganda • Tanzania Tanzania • ZambiaZambia

Other membersOther members• Africa ReAfrica Re• AtradiusAtradius• COMESACOMESA• PTA BankPTA Bank• SACE SACE • ZEP-REZEP-RE

Interest from…Interest from…Angola, Egypt, Angola, Egypt, Ethiopia, Mali, Ethiopia, Mali, Mozambique, Mozambique, Nigeria, Senegal, Nigeria, Senegal, Seychelles, Seychelles, ZimbabweZimbabwe

Open to all AU member states, non-African states, private corporations and other regional and international institutions

Current Members


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


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%


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


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


Case Example # 2An 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


●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


End of Part 2

Q & A


[email protected]@ati-aca.orgaca.org

[email protected]@ati-aca.org

Tel +254 (0)20 272 6999Tel +254 (0)20 272 6999

ATI ContactsATI Contacts

objectives of presentation

Documents