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The Private Insurance Market for Credit and Political Risks
Toby Heppel, RFIB Group Limited
April 2012
www.rfib.com
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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