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The Private Insurance Market for Credit and Political Risks

Toby Heppel, RFIB Group Limited

April 2012

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Agenda

• About the Private Credit/Political Risks Insurance

Market

• Coverage

• Participants

• The Private Market and Multilaterals

• The Private Market and Africa

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Most insurers underwrite the following risks:

• Political risks : Expropriation, Transfer, War & Political

Violence, Breach of Contract

• Sovereign obligor payment risk (“Contract

Frustration”/”Non-Honouring of a Sovereign

Obligation”)

• Commercial credit risk (“Credit Insurance”) – mostly

as single transactions, rather than wholeturnover

Insurance can be provided to the investor/exporter, or to

a financial institution.

The Private Market The Products

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About the Private Market The Players - Insurers

‘Corporates’

• About 10, including the “big three” :

Chartis, Sovereign and Zurich

Lloyd’s

• About 25 insurers (“Syndicates”) at Lloyd’s

The Private Market is centred in London, though some

insurers have branches elsewhere.

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About the Private Market The Players - Brokers

• About 15 Broking Firms in the London Market

have a Credit and PRI insurance team

• These vary in size and in the range of business

types transacted

• Brokers source business from clients worldwide.

• Brokers syndicate business with insurers in

London and worldwide

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About the Private Market Lloyd’s

Lloyd’s is not an insurer.

Lloyd’s is a marketplace

where insurers trade.

All types of non-Life

insurance are underwritten

at Lloyd’s

Annual gross written

premium. £22 billion

Lloyd’s is rated S&P A+

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About the Private Market Lloyd’s

Brokers negotiate with

Lloyd’s underwriters face to

face at the “box”.

When they have found the

best terms from an insurer,

they will syndicate the risk

amongst several insurers.

A risk can be syndicated in a

mixture of Lloyd’s and non-

Lloyd’s insurers

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Year on year growth, except for :

• Immediately after 9/11, and

• Chubb’s withdrawal from the market in May 2010

About the Private Market Theoretical Capacity (per Transaction) since 2001

Market Capacity

Year by Year

Investment Insurance

(for Equity Investors

and

Project Financiers)

Payment/Performance

Risks

(Sovereign Obligors)

Payment/Performance

Risks

(Private Sector

Obligors)

USD Millions

0

200

400

600

800

1000

1200

1400

Sep'01

Jan'02

Jan'03

Jan'04

Jan'05

Jan'06

Jan'07

Jul'07

Jan'08

Jul'08

Jan'09

Jul'09

Jan'10

Jul'10

Jan'11

Jul'11

Jan'12

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• Tenors vary from insurer

to insurer.

• Capacity for 15 year

tenors is available from

only a few insurers.

• The longer the tenor, the

fewer insurers can cover

it.

• The graph shows

theoretical maximum

capacity per transaction.

About the Private Market Capacity – by Tenor – January 2012

USD

Market Capacity

by Tenor

Investment Insurance

(for Equity Investors

and

Project Financiers)

Payment/Performance

Risks

(Sovereign Obligors)

Payment/Performance

Risks

(Private Sector

Obligors)

0

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

1,200,000,000

1,400,000,000

Up to 2-3years

Up to 5-6years

Up to 7 years Up to 10 years Up to 15 years

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• Fewer Credit/Political Risks claims than expected

(Risks either self-insured, or “no takers”)

• Tunisia – no claims

• Egypt – a few small political violence losses

• Yemen, Bahrain, Syria : few claims

• Libya : claims initially estimated at USD 500m+, now

revised to around USD 100m

• Current position :

Concerns in Egypt

Mainly Offrisk in Yemen, Syria

Some insurers open for Libya but highly selective

Political Violence losses

The Private Market The “Arab Spring” experience

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• Active in almost all African countries, although the

bulk of business is centred on just a few.

• Most insurance activity historically centred on Nigeria

(petroleum imports) and Angola (oil industry)

• Commodities related business : for example, Cote

d’Ivoire, Ghana

• Extractive industries : Zambia, DRC

• Some adverse experience : Ghana (Tema), DRC

• Current concerns : Nigeria

The Private Market in sub-Saharan Africa

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Multilaterals syndicate risk with other institutions and

insurers, in order to preserve and enhance capacity.

Private market insurers benefit from multilaterals :

• a source of business that they would not otherwise see

• local knowledge and information sources not easily

accessible elsewhere.

• risk assessment and diligence process

• The multilateral status and sovereign ownership, with

enhanced ability to mitigate potential losses, and resolve

difficulties

The involvement of a Multilateral Agency – insurer or

bank – frequently enables private sector insurers to

accept business they would not otherwise consider.

The Private Market Working with multilaterals

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RFIB Group Limited • Lloyd’s broker - Established 1980

• Independent - 300 employees - majority owned by staff

• Group turnover £44m (2010)

• British business with global reach & network

• All main classes of insurance and reinsurance

Credit and Political Risks Practice

RFIB’s team of seasoned political risk insurance market practitioners acts as

arranger and advisor to provide a comprehensive service that :

• is independent, unaligned and competitive

• is dedicated to sourcing innovative insurance solutions

• ensures prompt documentation and claims collection

Specialists in building co-operative relationships between Lenders, Multilaterals

and Private Sector insurers.

13

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Thank You.

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