Political Risk & Credit Risk
Insurance:
The Next Frontier for African
Reinsurers?
6 October, 2009
15th African Reinsurance Forum: Nairobi, Kenya
Humphrey Mwangi
Acting Chief Underwriting Officer
African Trade Insurance Agency (ATI)
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
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.
II.
III.
IV.
Credit Risk Insurance (CRI) in Detail
Background to ATI
ATI and Reinsurance
Case Example
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
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
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
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
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
PRI cont’d
Risks to international financing
• Transfer & convertibility, political
violence, expropriatory acts, nonhonouring of government guarantees,
breach of contract
Risks to finance programmes
• Wrongful calling of bonds
Risks to contracts
• Frustration, repudiation, embargo
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
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
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
The Market - players
Multilaterals
• ATI, MIGA, ICIEC
Official/National Agencies
• OPIC, EDC, ECIC-SA, BECI
The Private Market
• Chubb, Lloyds, Zurich, Sovereign
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
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
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
Familiar PRI Events
• Nationalization of oil
companies in Southern
America
• Forceful seizure of farms in
Southern Africa
• cancellation of mining licenses
in Central Africa
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
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
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
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 ZepRe, put together an XoL program
● PV cover now available in Kenya and
some East African countries
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
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
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
End of Part 1
Q&A
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
Objectives of Presentation
Part 2





Credit Risk Insurance (CRI) in Detail
Background to ATI
ATI and Reinsurance
Case Examples
Benefits to Your Company
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
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
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
CRI Classified
• Whole Turnover CRI
• Single Obligor CRI
– Private buyers
– Public buyers
• Lenders All Risks
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
Who Can Benefit From CRI?
•
•
•
•
•
•
Exporters
Importers
Banks
Contractors
Equipment suppliers
Service providers
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
Market Players
• Multilaterals e.g. ATI
• Export Credit Agencies e.g.
CGIC
• Exim-banks
• Private insurers e.g. COFACE,
Atradius, Euler-Hermes
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
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
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
Other Opportunities
Resource growth e.g. oil & gas
– stimulating economic activity
Telecoms sector
- Supply of equipment, service
Regional integration
– intra-regional trade
Reconstruction
Elections
Africa’s Trade Credit and Investment Insurer
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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”
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
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
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
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
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
ATI-ACA
ATI Credit Rating
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
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
Current Members
Member countries
• Burundi
• Djibouti*
• D.R. Congo
• Eritrea*
• Ghana*
• Kenya
• Liberia*
• Madagascar
• Malawi
• Rwanda
• Sudan*
• Uganda
• Tanzania
• Zambia
Other members
• Africa Re
• Atradius
• COMESA
• PTA Bank
• SACE
• ZEP-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 
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
ATI-ACA
ATI & Reinsurance
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
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
ATI Reinsurance
ATI: Relationship with Reinsurers
Whole Turnover Trade
Credit Insurance
Political Risk Insurance and
Medium Term Credit Insurance
Quota Share
Reinsurance
Treaty.
Facultative or Treaty
Reinsurance as
required.
60% Cession.
Risk Retention no less
than 10%
Atradius Re
Reinsurers include: Lloyd’s of
London Syndicates;
Sovereign Risk (Bermuda);
Zurich (USA); Chubb; and
Africa Re
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
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
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
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
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
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
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
Benefits to Your Company
● 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)
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
End of Part 2
Q&A
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org
ATI Contacts
Humphrey.mwangi@ati-aca.org
underwriting@ati-aca.org
Tel +254 (0)20 272 6999
Africa’s Trade Credit and Investment Insurer
www.ati-aca.org