Unlocking Africa's Potential: Exploring Political and Credit Risk Insurance

1. Political Risk & Credit RiskInsurance: The Next Frontier for African Reinsurers?6 October, 200915th African Reinsurance Forum: Nairobi, KenyaHumphrey MwangiActing Chief Underwriting OfficerAfrican Trade Insurance Agency (ATI)

2. Objectives of Presentation Part 1 PRI and CRI Defined The Market Political Risk Insurance (PRI) in Detail Case Example Part 2 Credit Risk Insurance (CRI) in Detail Background to ATI ATI and Reinsurance Case Example

3. 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. 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. 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. 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. The Market - players Multilaterals • ATI, MIGA, ICIEC Official/National Agencies • OPIC, EDC, ECIC-SA, BECI The Private Market • Chubb, Lloyds, Zurich, Sovereign

8. The Market - size PRI Capacity -2009

9. 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. 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. 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. Case Example #3ATI 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. End of Part 1 Q & A

14. Objectives of Presentation Part 2 Credit Risk Insurance (CRI) in Detail Background to ATI ATI and Reinsurance Case Examples Benefits to Your Company

15. 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. CRI Classified • Whole Turnover CRI • Single Obligor CRI • Private buyers • Public buyers • Lenders All Risks

17. Who Can Benefit From CRI? • Exporters • Importers • Banks • Contractors • Equipment suppliers • Service providers

18. Market Players • Multilaterals e.g. ATI • Export Credit Agencies e.g. CGIC • Exim-banks • Private insurers e.g. COFACE, Atradius, Euler-Hermes

19. 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. 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. 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. 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. 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. ATI Credit Rating ATI-ACA • 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

25. 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

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

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

28. 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. 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. 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

31. 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)

32. End of Part 2 Q & A

33. ATI Contacts Humphrey.mwangi@ati-aca.org underwriting@ati-aca.org Tel +254 (0)20 272 6999