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)

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 2

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 Official/National Agencies 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 14

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 Lenders All Risks 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 Telecoms sector 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 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 Country risk Competition ?

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  25

ATI & Reinsurance Objectives: ATI-ACA 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 Country risk Competition ?

ATI: Relationship with Reinsurers ATI Reinsurance ATI: Relationship with Reinsurers 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

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 # 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

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)

End of Part 2 Q & A

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