tusekile kibonde resident underwriter – tanzania november 2015 dar es salaam, tanzania...
TRANSCRIPT
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Tusekile KibondeResident Underwriter – Tanzania
November 2015Dar es Salaam, Tanzania
Introduction to Political Risk Insurance & Underwriting
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“Compared to 2011, Africa today seems more risky than during the Arab Spring.”
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A Key Question: What are some of the Challenges for
Investment?
Z$1
.9 m
● Investment Risks (government actions affecting foreign direct investment)
● Regulations from the country that limits where, when and how business is done
● Access to finance
● Non-acceptance of goods
● Currency issues on cross border transactions
● Non-payment for goods supplied on credit
● Lack of supporting infrastructure, ineffective legal systems, and interest rate increases
● Political Violence, Terrorism & Sabotage
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Possible Solutions
Z$1
.9 m
Focus on Assets & Receivables
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Overview of Political Risk Insurance
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Definition
● Political Risk Insurance is a type of insurance that protects investments, projects, goods and contracts against any unfair political action or inaction by a government that would cause damage, financial loss or business interruption
● It is also known as Investment Risk Insurance
● Provide investment insurance to commercial bank lenders and private sector equity investors
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What is Investment Insurance?
Investment Insurance provides protection against specific non-commercial risks including:
● Currency conversion and transfer restrictions
● Expropriation – outright and creeping
● Political Violence – asset damage or inability to operate
● Non-Payment by sovereign and public borrowers
Our insurance helps investors, lenders & traders improve the risk profile in member states. Many need this insurance as a condition of internal approvals in many developing countries.
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Types of Investment Insurance (1)
Currency conversion and transfer restrictions
●This cover protects against losses caused by currency transfer restrictions
●Cover applies to the interruption of scheduled payments or repatriation of capital or dividends due to currency restrictions imposed by the host government
Expropriation – outright and creeping
●Also referred as Confiscation, Expropriation, and Nationalization
●This cover protects against losses caused by various acts of expropriation
●Cover usually applies to outright confiscation of property or funds
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Types of Investment Insurance (2)
Political Violence – asset damage or inability to operate
●Cover protects against losses caused by war, civil disturbance, or terrorism
Non-Payment by sovereign and public borrowers● These can be categorized in three forms:1. Contract Frustration covers:
– sale/contract is frustrated due to specific political risk perils (e.g. political violence) thereby causing the exporter to lose its sunk costs and profit
– payment risk of the sovereign buyer to the extent the supplier has completed its obligations under the contract and the sovereign buyer has acquired a payment obligation to the supplier.
.
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Types of Investment Insurance (3)
2. Arbitration Award Default covers:– the sovereign (or sub-sovereign) entity has payment
obligations under a contract with a domestic entity in which the insured has an ownership interest, and the insured is seeking coverage to protect that investment
– compensation would cover the failure of the sovereign to pay
an arbitration award.
3. Non-payment of Sovereign (Sub) Obligation covers:– protects the lender against losses resulting from a
government’s failure to make a payment when due under an unconditional financial payment obligation or guarantee, because of inability or unwillingness to pay.
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Underwriting of Political Risk Insurance
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Underwriting Sovereign Payment Risk
Evaluation is based on:• Obligor – Sovereign or Sub-sovereign• Review of the Agreement/Contract• Allocation of Funds for the project• Commitment/Support from the Sovereign• Country Risk Analysis
• Government/Political Stability• Economic Performance – Inflation,
Exchange Rate, National Debt, Economic policies
• Sector Risk Analysis - Regulations
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Key Policy Features
Tenor: Up to a maximum of 10 years
Size (Gross Exposure): Sovereign Risk: Up to US$150 million Political Risk: Up to US$100 million
Indemnity - Insured Percentage: Up to 100% (Political Risks)
Waiting Period: 180 days
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Pricing & Payment
Key Questions
Pricing:Price to risk, depends on perils being insured, country risk, tenure and bank’s margins among others 1.5% to 3.2% p.a. Minimum Premium:
US$ 3,000
Flexible Premium Payment: Pricing/premium rate. Payable up front, annually. Other options can also be negotiated
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Case Examples
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Main Political Risk Covers
$3.1
m
Zam
bia
$1.9
m
$1.3
Rw
and
a$1
.1
Ken
ya$7
49
Ug
and
a$3
49
Bu
run
di
$130
US$ 9 million
PRI – Expropriation, Currency Inconvertibility, War
A loan to part finance the establishment of a new hotel in Kampala
Insured: A South African Bank
Country: Uganda
US$ 12.5 million
PRI – Expropriation, Transfer Restriction
A US$ 12.5 million investment in the telecommunication sector
Insured: Foreign Investor
Country: Burundi
US$ 26.6 million
PRI – Loan Cover (Expropriation)
Loan for expansion of a cement plant
Insured: A Kenyan Bank
Country: Rwanda
US$ 250 million
PRI – Sovereign Non-honouring Cover
A syndicated loan to facilitate infrastructure development by the government
Insured: An International Bank
Country: Tanzania
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Others
$3.1
m
Zam
bia
$1.9
m
$1.3
Rw
and
a$1
.1
Ken
ya$7
49
Ug
and
a$3
49
Bu
run
di
$130
US$ 167,000
Sovereign Non-Payment Cover
Contract for the supply of uniforms to a government department
Insured: A Kenyan Company
Country: Malawi
US$ 150 million
PRI – Sovereign Non-honouring Cover
A US$ 350 million participation on an import finance facility for petroleum products
Insured: A Regional Bank
Country: Zambia
US$ 6.0 million
PRI – Sovereign Non-honouring Cover
Upgrading of Telecommunication systems for a government department
Insured: A Tanzania Company
Country: Tanzania
$1.75 million
Sovereign Non-honouring Cover
Non-payment on a road project in Nairobi, Kenya. Bank providing facilities to the contractor with ATI support
Insured: Kenya Contractor
Bank: A Kenyan Bank
Country: Kenya
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Unlocking your Potential
Areas of Opportunity
● Manufactures/traders who sell to GoU or gov’ts in member countries
● Contractors with GoU, Parastatals & gov’ts in member countries
● Syndicated loans to government
● Cross border loans
● Lines of credit from international banks
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ATI HeadquartersKenya-Re Towers | Upperhill, Nairobi
ATI Tanzania Office1st Floor, Private Sector Hs | Mwaya Road
Dar es [email protected]
ATI Uganda OfficeWorkers House, 9th Floor
Southern Wing Plot1 Pilkington Road | Kampala [email protected]
ATI Zambia OfficeKwacha House Annex | Cairo Road
ATI ContactsAfrica’s Export Credit Agency
www.ati-aca.org
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Questions?