FINANCIAL OVERVIEW AND FINANCIAL STATEMENTS€¦ · 84 Report of Independent Accountants. 62 MIGA...

61

F I N A N C I A L S T A T E M E N T S

F I N A N C I A L OV E R V I E WA N D

F I N A N C I A L S T AT E M E N T S62 Financial Overview64 Financial Statements64 Balance Sheet65 Statement of Income66 Statement of Comprehensive Income66 Statement of Changes in Shareholders’ Equity67 Statement of Cash Flows68 Statement of Subscriptions to Capital Stock

and Voting Power72 Statement of Guarantees Outstanding74 Notes to Financial Statements84 Report of Independent Accountants

62

M I G A A N N U A L R E P O R T 2 0 0 0

NET PREMIUM INCOMEMIGA’s net premium and fees income for fiscal 2000 increasedby $4.6 million to $29.5 million, reflecting the increase in NetExposure. Other factors included: (1) the larger proportion ofguarantees issued during the first half compared to the previousyear, (2) the increased use of the Cooperative UnderwritingProgram, and (3) changes in MIGA’s reinsurance arrangements.

INVESTMENT INCOMEMIGA’s investment income increased by $3.0 million to$23.5 million. This reflected: (1) the size of the investment port-folio, which increased from $403.6 million to $464.4 million(figure on the left), and (2) the investment return, which in-creased from 5.0 percent to 5.3 percent. The average maturity ofthe investment portfolio in fiscal 2000 was 11.4 months.

ADMINISTRATIVE EXPENSESTotal expenditure of $18.1 million compared with a budget of$19.5 million. The variance of $1.4 million included an unutilizedcontingency of $0.5 million; the balance was primarily associ-ated with staff and benefit costs.

NET INCOMENet Income of $10.9 million in fiscal 2000 compared with $10.4million in fiscal 1999. The variance comprised:

($ millions)

Increase in premium and fee income + 4.6Increase in investment income + 3.0Decrease in income from Staff Retirement Plan – 1.1Increase in provisioning – 3.3Increase in administrative and other expenses – 2.7

Increase in Net Income + 0.5

OTHER ASSETSOther Assets of $37.4 million in fiscal 2000 compared with $19.4in fiscal 1999. The variance comprised:

($ millions)

Increase in receivable & accrued interest +10.9Increase in prepaid pension + 2.4Increase in receivable for capital subscription + 3.2Increase in premiums receivable and prepaid + 1.5

Increase in Other Assets +18.0

46%

38%

11%

3%

Bank

Dep

osit

US Tr

easu

ry

Sove

reig

n Go

vern

men

t Gua

rant

eed

US A

genc

y

Asset Allocation

63

F I N A N C I A L S T A T E M E N T SF I N A N C I A L O V E R V I E W

PAYABLES AND ACCRUED EXPENSESPayables and Accrued Expenses of $31.6 million in fiscal 2000 com-pared with $16.9 million in fiscal 1999. The variance comprised:

($ millions)

Increase in investment securities payables + 9.6Increase in other payables + 4.6Increase in accrued expenses + 0.5

Increase in Payables and Accrued Expenses +14.7

TRANSLATION ADJUSTMENTSTranslation Adjustments in fiscal 2000 amounted to $(1.7) mil-lion and comprised: $(1.3) million relating to paid in subscrip-tions, and $(0.4) million relating to other assets and liabilities.

RESERVE FOR CLAIMSMIGA’s Reserve for Claims (figure on the right) comprised Spe-cific Claims Reserves of $1.5 million and General Claims Reservesof $262.9 million*. The provision for claims amounted to $26.6million and reflected: (1) the increase in Net Exposure, (2) rela-tively larger exposures in IDA countries and the infrastructuresector, (3) a change in the discount rate from 5.0 percent to 6.4percent, and (4) the payment of $4.5 million of claims net ofreinsurance.

LIQUIDITYMIGA measures liquidity by reference to: (1) the resources thatare available to pay claims, and (2) the capital and reserves thatare available to sustain losses and support the on-going business.As of June 30, 2000, the former included MIGA’s investmentportfolio of $464.4 million, credit facilities of $75.0 million**,and promissory notes of $102.3 million. The latter is termedOperating Capital and comprised General Claims Reserves of$262.9 million, and Total Shareholders Equity of $298.5 mil-lion. In addition, MIGA was supported by $1,022.8 million ofcallable capital.

CAPITAL INCREASEOn March 29, 1999, MIGA’s Council of Governors approved ageneral capital increase of $850 million, to be subscribed overthree years. As of June 30, 2000, 34 countries had subscribed atotal of $171.5 million, of which $30.2 million was in cash andthe balance was in the form of callable capital (see page 3 for alist of MIGA member countries).

* General Claims Reserves areintended to cover the presentvalue of the estimated futurelosses, net of related premiumincome, arising from theexisting guarantee portfoliobased on current events anddevelopments.

** MIGA has credit facilities of$75 million with UBS.In August 2000, MIGAreached agreement withRoyal Bank of Canada foradditional credit facilities of$85 million.

-150

-100

-50

0

50

100

150

200

syst

emic

loss

es

attri

tiona

l los

ses

proj

ects

of c

once

rn

rein

sure

r cre

dit r

isk

adm

inist

rativ

e ex

pens

es

net p

rem

ium

inco

me

Composition of GeneralClaims Reserve

64


BALANCE SHEETJune 30, 2000 and June 30, 1999Expressed in thousands of U.S. dollars

2000 1999

AssetsCASH ........................................................................................ $ 7,904 $ 9,768

INVESTMENTS – Note AAvailable-for-sale ................................................................... 464,448 363,574Held-to-maturity ................................................................... – 39,982

464,448 403,556

NONNEGOTIABLE, NONINTEREST-BEARINGDEMAND OBLIGATIONS – Note B ................................... 102,328 102,237

OTHER ASSETSEstimated reinsurance recoverables ....................................... 111,300 97,000Other assets ........................................................................... 37,445 19,449

148,745 116,449

TOTAL ASSETS ........................................................................ $723,425 $ 632,010

Liabilities and Shareholders’ EquityLIABILITIES

Accounts payable and accrued expenses ................................ $ 31,560 $ 16,848

Unearned premiums and commitments fees .......................... 17,705 15,632

Reserve for claims – Note EReserve for claims net of estimated reinsurance recoverable 264,400 243,000Estimated reinsurance recoverables .................................. 111,300 97,000Reserve for claims – gross ................................................. 375,700 340,000

Total liabilities .................................................................. 424,965 372,480

SHAREHOLDERS’ EQUITYCapital stock – Note B

Authorized capital (180,402 shares – June 30, 2000,180,199 – June 30, 1999)

Subscribed capital (117,694 shares – June 30, 2000;103,653 shares – June 30, 1999) ................................... 1,273,449 1,121,525

Less uncalled portion of subscriptions .............................. 1,022,790 897,732

Less amounts due on called subscriptions ......................... 731 731

249,928 223,062Payments on account of pending subscriptions ...................... 3,587 342

253,515 223,404Retained earnings .................................................................. 55,369 44,465Accumulated other comprehensive income – Note I ............. (10,424) (8,339

Total shareholders’ equity ................................................ 298,460 259,530

CONTINGENT LIABILITIES – Notes C and D

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY....... $723,425 $ 632,010

)

(See Notes to Financial Statements)

65


STATEMENT OF INCOMEFor the fiscal years ended June 30, 2000 and June 30, 1999Expressed in thousands of U.S. dollars

2000 1999

INCOMEIncome from guarantees

Premium income .............................................................. $ 37,443 $ 30,723Premium ceded ................................................................ (13,037) (8,000Fees and commissions ....................................................... 5,128 2,190

Total ................................................................................. 29,534 24,913

Income from investmentsAvailable-for-sale .............................................................. 22,101 4,713Held-to-maturity .............................................................. 1,372 15,713

Total ................................................................................. 23,473 20,426

Income from Staff Retirement Plan – Note F ........................ 2,576 3,740Miscellaneous income............................................................ 141 36

Total income .................................................................... 55,724 49,115

EXPENSESProvision for claims – Note E ................................................ 26,625 23,269Administrative expenses – Notes F, G, and H ........................ 18,065 15,241Other expenses ..................................................................... 130 221

Total expenses .................................................................. 44,820 38,731

NET INCOME .......................................................................... $ 10,904 $ 10,384

)


66


STATEMENT OF COMPREHENSIVE INCOMEFor the fiscal years ended June 30, 2000 and June 30, 1999Expressed in thousands of U.S. dollars

2000 1999

NET INCOME ...................................... .…………………..…… $ 10,904 $ 10,384

OTHER COMPREHENSIVE INCOMETranslation adjustment .......................................................... (1,724) (857Unrealized loss on available-for-sale investments ................... (361) (1,079

Total ............................................ …………………………. (2,085) (1,936

TOTAL COMPREHENSIVE INCOME .................................... $ 8,819 $ 8,448

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITYFor the fiscal years ended June 30, 2000 and June 30, 1999Expressed in thousands of U.S. dollars

2000 1999

CAPITAL STOCKBalance at beginning of the fiscal year ................................... $223,404 $ 215,246New subscriptions ................................................................. 26,866 8,082Payments on account of pending subscriptions ...................... 3,245 76

Ending balance ...................................................................... 253,515 223,404

RETAINED EARNINGSBalance at beginning of the fiscal year ................................... 44,465 34,081Net income ........................................................................... 10,904 10,384

Ending balance ...................................................................... 55,369 44,465

ACCUMULATED OTHER COMPREHENSIVE INCOMEBalance at beginning of the fiscal year ................................... (8,339) (6,403Other comprehensive income ............................................... (2,085) (1,936

Ending balance ...................................................................... (10,424) (8,339

TOTAL SHAREHOLDERS’ EQUITY ...................................... $298,460 $ 259,530

)

))

)

))


67


STATEMENT OF CASH FLOWSFor the fiscal years ended June 30, 2000 and June 30, 1999Expressed in thousands of U.S. dollars

2000 1999

CASH FLOWS FROM OPERATING ACTIVITIESNet income ........................................................................... $ 10,904 $ 10,384Adjustments to reconcile net income to net cash provided

by operating activities:Provision for claims .......................................................... 26,625 23,269Accretion of discounts, net ............................................... (15) (33Increase in other assets ..................................................... (17,973) (9,169Increase in unearned premiums and commitment fees ..... 2,139 3,291Increase in accounts payable ............................................. 14,725 8,195

36,405 35,937Claim payment - net ............................................................. (4,500) -

Net cash provided by operating activities .............................. 31,905 35,937

CASH FLOWS FROM INVESTING ACTIVITIESAvailable-for-sale portfolio: sales and maturities .................... 26,666,287 4,786,195

Purchases .................................................... (26,769,750) (5,151,542Held-to-maturity portfolio: sales and maturities .................... 39,982 30,103,408

Purchases .................................................... – (29,775,867

Net cash used in investing activities ...................................... (63,481) (37,806

CASH FLOWS FROM FINANCING ACTIVITIESCapital subscription payments .............................................. 30,005 6,066

EFFECT OF EXCHANGE RATE CHANGES ON CASH ....... (293) (302

Net (decrease) increase in cash .............................................. (1,864) 3,895Cash at beginning of the fiscal year ....................................... 9,768 5,873

CASH AT END OF THE FISCAL YEAR .................................. $ 7,904 $ 9,768

)

)

)

)

))


68


Albania .................................. 58 $ 628 $ 126 $ - $ 502 235 0.16Algeria ................................... 649 7,022 1,404 - 5,618 826 0.57Angola ................................... 187 2,023 405 - 1,618 364 0.25Argentina ............................... 1,254 13,568 2,714 - 10,854 1,431 0.99Armenia ................................ 80 866 173 - 693 257 0.18Australia ................................ 1,713 18,535 3,707 - 14,828 1,890 1.31Austria ................................... 1,070 11,577 2,240 - 9,337 1,247 0.86Azerbaijan ............................. 115 1,244 249 - 995 292 0.20Bahamas, The ......................... 138 1,493 289 - 1,204 315 0.22Bahrain .................................. 106 1,147 222 - 925 283 0.20Bangladesh ............................. 340 3,679 736 - 2,943 517 0.36

Barbados ................................ 94 1,017 197 - 820 271 0.19Belarus ................................... 233 2,521 504 - 2,017 410 0.28Belgium ................................. 3,061 33,120 6,362 - 26,758 3,238 2.24Belize ..................................... 69 747 144 - 603 246 0.17Benin ..................................... 61 660 132 - 528 238 0.16Bolivia ................................... 125 1,353 271 - 1,082 302 0.21Bosnia and Herzegovina ......... 80 866 173 - 693 257 0.18Botswana ............................... 50 541 108 - 433 227 0.16Brazil ..................................... 1,479 16,003 3,201 - 12,802 1,656 1.15Bulgaria ................................. 365 3,949 790 - 3,159 542 0.37

Burkina Faso .......................... 61 660 132 - 528 238 0.16Burundi ................................. 74 801 160 - 641 251 0.17Cambodia .............................. 93 1,006 201 - 805 270 0.19Cameroon .............................. 107 1,158 232 - 926 284 0.20Canada .................................. 2,965 32,081 6,416 - 25,665 3,142 2.17Cape Verde ............................ 50 541 108 - 433 227 0.16Chile ...................................... 485 5,248 1,050 - 4,198 662 0.46China ..................................... 4,334 46,894 9,075 - 37,819 4,511 3.12Colombia ............................... 437 4,728 946 - 3,782 614 0.42Congo, Democratic

Republic of ......................... 338 3,658 - 731 2,927 515 0.36

Congo, Republic of ................ 65 703 141 - 562 242 0.17Costa Rica ............................. 117 1,266 253 - 1,013 294 0.20Côte d'Ivoire ......................... 176 1,904 381 - 1,523 353 0.24Croatia .................................. 258 2,792 540 - 2,252 435 0.30Cyprus ................................... 143 1,547 300 - 1,247 320 0.22Czech Republic ..................... 614 6,643 1,286 - 5,357 791 0.55Denmark ............................... 1,265 13,687 2,598 - 11,089 1,442 1.00Dominica ............................... 50 541 108 - 433 227 0.16Dominican Republic .............. 147 1,591 318 - 1,273 324 0.22Ecuador ................................. 182 1,969 394 - 1,575 359 0.25

STATEMENT OF SUBSCRIPTIONS TO CAPITAL STOCK AND VOTING POWERJune 30, 2000

Subscriptions (Note B)(thousands of U.S. dollars) Voting Power

Amount Number %Total Amount Amount Subject of of

Member Shares Subscribed Paid In Due to Call Votes Total


69


Egypt, Arab Republic of ......... 459 $ 4,966 $ 993 $ - $ 3,973 636 0.44El Salvador ............................ 122 1,320 264 - 1,056 299 0.21Equatorial Guinea ................. 50 541 108 - 433 227 0.16Eritrea ................................... 50 541 108 - 433 227 0.16Estonia ................................... 65 703 141 - 562 242 0.17Ethiopia ................................. 70 757 151 - 606 247 0.17Fiji ......................................... 71 768 154 - 614 248 0.17Finland .................................. 600 6,492 1,298 - 5,194 777 0.54France .................................... 4,860 52,585 10,517 - 42,068 5,037 3.48Gambia, The .......................... 50 541 108 - 433 227 0.16Georgia .................................. 111 1,201 240 - 961 288 0.20

Germany ............................... 5,071 54,868 10,974 - 43,894 5,248 3.63Ghana .................................... 245 2,651 530 - 2,121 422 0.29Greece ................................... 386 4,177 808 - 3,369 563 0.39Grenada ................................. 50 541 108 - 433 227 0.16Guatemala ............................. 140 1,515 303 - 1,212 317 0.22Guinea ................................... 91 985 197 - 788 268 0.19Guyana .................................. 84 909 182 - 727 261 0.18Haiti ...................................... 75 812 162 - 650 252 0.17Honduras ............................... 139 1,504 291 - 1,213 316 0.22Hungary ................................ 564 6,102 1,220 - 4,882 741 0.51

Iceland ................................... 90 974 195 - 779 267 0.18India ...................................... 3,048 32,979 6,596 - 26,383 3,225 2.23Indonesia ............................... 1,049 11,350 2,270 - 9,080 1,226 0.85Ireland ................................... 369 3,993 799 - 3,194 546 0.38Israel ...................................... 654 7,076 1,369 - 5,707 831 0.57Italy ....................................... 2,820 30,512 6,102 - 24,410 2,997 2.07Jamaica .................................. 181 1,958 392 - 1,566 358 0.25Japan ..................................... 8,979 97,153 18,443 - 78,710 9,156 6.33Jordan .................................... 97 1,050 210 - 840 274 0.19Kazakhstan ............................ 209 2,261 452 - 1,809 386 0.27Kenya .................................... 237 2,564 496 - 2,068 414 0.29

Korea, Republic of ................. 620 6,708 1,298 - 5,410 797 0.55Kuwait ................................... 930 10,063 2,013 - 8,050 1,107 0.77Kyrgyz Republic .................... 77 833 167 - 666 254 0.18Lao People’s Democratic

Republic ............................ 60 649 130 - 519 237 0.16Latvia .................................... 134 1,450 281 - 1,169 311 0.22Lebanon ................................ 142 1,536 307 - 1,229 319 0.22Lesotho .................................. 50 541 108 - 433 227 0.16Libya ..................................... 549 5,940 1,188 - 4,752 726 0.50Lithuania ............................... 106 1,147 229 - 918 283 0.20






70


Luxembourg .......................... 160 $ 1,731 $ 335 $ - $ 1,396 337 0.23Macedonia, former

Yugoslav Republic of .......... 50 541 108 - 433 227 0.16Madagascar ............................ 100 1,082 216 - 866 277 0.19Malawi ................................... 77 833 167 - 666 254 0.18Malaysia ................................. 579 6,265 1,253 - 5,012 756 0.52Mali ....................................... 81 876 175 - 701 258 0.18Malta ..................................... 103 1,114 216 - 898 280 0.19Mauritania ............................. 63 682 136 - 546 240 0.17Mauritius ............................... 153 1,655 314 - 1,341 330 0.23Micronesia, Fed. States of ...... 50 541 108 - 433 227 0.16

Moldova ................................ 96 1,039 208 - 831 273 0.19Mongolia ............................... 58 628 126 - 502 235 0.16Morocco ................................ 348 3,765 753 - 3,012 525 0.36Mozambique ......................... 97 1,050 210 - 840 274 0.19Namibia ................................. 107 1,158 232 - 926 284 0.20Nepal ..................................... 69 747 149 - 598 246 0.17Netherlands ........................... 3,822 41,354 7,850 - 33,504 3,999 2.77Nicaragua .............................. 102 1,104 221 - 883 279 0.19Nigeria ................................... 844 9,132 1,826 - 7,306 1,021 0.71Norway .................................. 949 10,268 1,990 - 8,278 1,126 0.78

Oman .................................... 94 1,018 203 - 815 271 0.19Pakistan ................................. 660 7,141 1,428 - 5,713 837 0.58Palau ...................................... 50 541 108 - 433 227 0.16Panama .................................. 131 1,417 283 - 1,134 308 0.21Papua New Guinea ................ 96 1,039 208 - 831 273 0.19Paraguay ................................ 80 866 173 - 693 257 0.18Peru ....................................... 515 5,572 1,078 - 4,494 692 0.48Philippines ............................. 484 5,237 1,047 - 4,190 661 0.46Poland .................................... 764 8,266 1,653 - 6,613 941 0.65Portugal ................................. 527 5,702 1,104 - 4,598 704 0.49Qatar ..................................... 137 1,482 296 - 1,186 314 0.22

Romania ................................ 555 6,005 1,201 - 4,804 732 0.51Russian Federation ................. 4,332 46,872 9,071 - 37,801 4,509 3.12St. Kitts and Nevis ................. 50 541 108 - 433 227 0.16St. Lucia ................................ 69 747 144 - 603 246 0.17St. Vincent and the

Grenadines ........................ 50 541 108 - 433 227 0.16Samoa .................................... 50 541 108 - 433 227 0.16Saudi Arabia .......................... 4,332 46,872 9,071 - 37,801 4,509 3.12Senegal .................................. 145 1,569 314 - 1,255 322 0.22Seychelles .............................. 50 541 108 - 433 227 0.16






71







Sierra Leone .......................... 75 $ 812 $ 162 $ - $ 650 252 0.17Singapore ............................... 154 1,666 333 - 1,333 331 0.23Slovak Republic ..................... 222 2,402 480 - 1,922 399 0.28Slovenia ................................. 102 1,104 221 - 883 279 0.19South Africa .......................... 1,302 14,088 2,726 - 11,362 1,479 1.02Spain ..................................... 2,265 24,507 4,652 - 19,855 2,442 1.69Sri Lanka ............................... 374 4,047 783 - 3,264 551 0.38Sudan .................................... 206 2,229 446 - 1,783 383 0.26Swaziland .............................. 58 628 126 - 502 235 0.16Sweden .................................. 1,049 11,350 2,270 - 9,080 1,226 0.85Switzerland ............................ 1,500 16,230 3,246 - 12,984 1,677 1.16

Tanzania ................................ 141 1,526 305 - 1,221 318 0.22Togo ...................................... 77 833 167 - 666 254 0.18Trinidad and Tobago .............. 280 3,030 586 - 2,444 457 0.32Tunisia ................................... 156 1,688 338 - 1,350 333 0.23Turkey ................................... 462 4,999 1,000 - 3,999 639 0.44Turkmenistan ......................... 66 714 143 - 571 243 0.17Uganda .................................. 132 1,428 286 - 1,142 309 0.21Ukraine .................................. 764 8,266 1,653 - 6,613 941 0.65United Arab Emirates ............ 372 4,025 805 - 3,220 549 0.38United Kingdom .................... 6,095 65,948 12,876 - 53,072 6,272 4.34

United States ......................... 20,938 226,549 45,203 - 181,346 21,115 14.60Uruguay ................................. 202 2,186 438 - 1,748 379 0.26Uzbekistan ............................. 175 1,894 380 - 1,514 352 0.24Vanuatu ................................. 50 541 108 - 433 227 0.16Venezuela, Republica

Bolivariana de .................... 1,427 15,440 3,088 - 12,352 1,604 1.11Vietnam................................. 220 2,380 476 - 1,904 397 0.27Yemen, Republic of ............... 155 1,677 335 - 1,342 332 0.23Zambia .................................. 318 3,441 688 - 2,753 495 0.34Zimbabwe ............................. 236 2,553 511 - 2,042 413 0.29

Total–June 30, 2000 a/ .............. 117,694 $1,273,449 $249,928 $731 $1,022,790 144,598 100.00

Total–June 30, 1999 .............. 103,653 $1,121,525 $223,062 $731 $ 897,732 130,026

Note: Amounts aggregating the equivalent of $3,587,000 have been received from countries in the process ofcompleting their membership requirements (Central African Republic $44,000, Suriname $155,000); a country inthe process of succession to membership (Federal Republic of Yugoslavia—(Serbia and Montenegro) $188,000);and a member in the process of subscribing to additional shares of the 1998 General Capital Increase (United States$3,200,000).

a/ May differ from the sum of individual figures shown because of rounding

72


STATEMENT OF GUARANTEES OUTSTANDINGJune 30, 2000

Gross Exposure by Guarantee Currency (Note C)(thousands of U.S. dollars)

U.S. Deutsche French Japanese Reinsurance NetHost Country Dollars Marks Euro Francs Yen Total (Note D) Exposure

Albania $ 1,565 $ $ $ $ $ 1,565 $ $ 1,565

Algeria 5,166 5,166 5,166

Angola 20,805 20,805 20,805

Argentina 431,260 431,260 227,545 203,715

Armenia 2,700 2,700 2,700

Azerbaijan 65,424 65,424 4,834 60,590

Bangladesh 79,542 79,542 14,670 64,872

Bolivia 77,094 77,094 43,750 33,344

Bosnia and

Herzegovina 20,992 20,992 20,992

Brazil 631,406 631,406 346,580 284,826

Bulgaria 1,867 12,707 14,574 14,574

Cape Verde 2,320 2,320 2,320

Chile 56,724 56,724 7,594 49,130

China 117,837 3,176 121,013 35,288 85,725

Colombia 105,409 105,409 52,207 53,202

Costa Rica 74,942 74,942 12,488 62,454

Côte d’Ivoire 14,722 14,722 14,722

Croatia 52,522 52,522 52,522

Czech Republic 19,650 79,282 98,932 13,755 85,177

Dominican

Republic 152,404 152,404 55,694 96,710

Ecuador 33,000 33,000 6,000 27,000

El Salvador 3,300 3,300 3,300

Georgia 2,134 2,134 2,134

Ghana 14,670 14,670 14,670

Guatemala 18,669 18,669 8,570 10,099

Guinea 2,864 2,864 2,864

Guyana 30,600 30,600 30,600

Honduras 17,157 17,157 17,157

Indonesia 56,496 56,496 3,527 52,969

Jamaica 97,336 97,336 5,317 92,019

Kazakhstan 26,059 26,059 26,059

Kenya 42,190 42,190 18,745 23,445

Kuwait 50,000 50,000 50,000

Kyrgyz Republic 75,150 75,150 1,050 74,100

Lesotho 23,761 23,761 23,761

Macedonia, FYR of 18,872 18,872 18,872

Madagascar 1,440 1,440 1,440

Mali 35,500 35,500 35,500


73


STATEMENT OF GUARANTEES OUTSTANDINGJune 30, 2000

Gross Exposure by Guarantee Currency (Note C)(thousands of U.S. dollars)

U.S. Deutsche French Japanese Reinsurance NetHost Country Dollars Marks Euro Francs Yen Total (Note D) Exposure

Moldova $ 2,700 $ $ $ $ $ 2,700 $ $ 2,700

Mozambique 112,215 112,215 46,700 65,515

Nepal 32,827 32,827 14,613 18,214

Nicaragua 81,409 81,409 40,704 40,705

Pakistan 125,350 7,538 9,602 1,194 143,684 16,793 126,891

Papua New Guinea 51,016 51,016 20,376 30,640

Paraguay 5,000 5,000 1,500 3,500

Peru 329,884 329,884 143,513 186,371

Philippines 60,000 60,000 2,250 57,750

Poland 2,166 2,166 2,166

Romania 35,226 35,226 10,568 24,658

Russian Federation 269,057 269,057 142,032 127,025

Slovak Republic 23,587 20,490 44,077 44,077

South Africa 34,800 34,800 34,800

Sri Lanka 3,386 3,386 3,386

Swaziland 69,400 69,400 34,700 34,700

Tanzania 118,980 118,980 88,983 29,997

Turkey 220,729 4,895 225,624 92,841 132,783

Turkmenistan 8,000 8,000 8,000

Uganda 47,685 47,685 10,758 36,927

Ukraine 5,000 5,000 1,500 3,500

Uruguay 33,567 33,567 9,260 24,307

Uzbekistan 10,000 10,000 10,000

Venezuela,

R. B. de 108,500 108,500 30,850 77,650

Vietnam 36,000 36,000 18,000 18,000

Zambia 31,300 31,300 31,300

Subtotal $4,225,452 $ 33,370 $218,760 $ 1,440 $ 1,194 $4,480,216 $1,583,556 $2,896,660

Adjustments for dual-country contracts:

Argentina/Chile -31,410 -31,410 -31,410

Brazil/Bolivia -14,594 -14,594 -14,594

Mozambique/

Swaziland -69,400 -69,400 -34,700 -34,700

Total–June 30, 2000a/ $4,110,048 $ 33,370 $ 218,760 $ 1,440 $ 1,194 $4,364,812 $1,548,856 $2,815,956

Total–June 30, 1999 $3,554,099 $ 47,447 $ 71,300 $ 1,590 $ 1,039 $3,675,475 $1,067,933 $2,607,542

a/ May differ from the sum of individual figures shown because of rounding


74


NOTES TO FINANCIAL STATEMENTS

PURPOSEThe Multilateral Investment Guarantee Agency (MIGA), estab-lished on April 12, 1988, is a member of the World Bank Group,which also includes the International Bank for Reconstructionand Development (IBRD), the International Finance Corpora-tion (IFC), and the International Development Association (IDA).MIGA’s activities are closely coordinated with and complementthe overall development objectives of the other World Bank in-stitutions. MIGA is designed to help developing countries attractproductive foreign investment by both private investors and com-mercially operated public sector companies. Its products includeguarantees or insurance against noncommercial risks and a pro-gram of advisory services and technical assistance to supportmember countries’ efforts to attract and retain foreign directinvestment.

SUMMARY OF SIGNIFICANT ACCOUNTING ANDRELATED POLICIESMIGA's financial statements have been prepared in conformitywith International Accounting Standards and with generally ac-cepted accounting principles in the United States. The policyadopted is that considered most appropriate to the circumstancesof MIGA having regard to its legal requirements and to the prac-tices of other international insurance entities.

Use of EstimatesThe preparation of financial statements in conformity withInternational Accounting Standards and generally acceptedaccounting principles in the United States requires managementto make estimates and assumptions that affect the amounts re-ported in the financial statements. Actual results could differ fromthose estimates. The following summary of policies adopted byMIGA is provided to assist readers in the interpretation of thesefinancial statements.

Translation of CurrenciesMIGA's financial statements are expressed in terms of UnitedStates dollars solely for the purpose of summarizing MIGA'sfinancial position and the results of its operations for the conve-nience of its members and other interested parties.

75



MIGA is an international organization that may conductits operations in the currencies of all its members. MIGA's re-sources are derived from its capital and retained earnings in itsmembers' currencies. MIGA strives to minimize exchange raterisks in a multicurrency environment. As such, MIGA attemptsto match its contingent obligations in any one currency with as-sets in the same currency on a pro-rata basis.

Accordingly, MIGA may periodically undertake currencyconversions on a pro-rata basis to match the currencies underlyingits reserves with those of the outstanding contingencies. Thepurpose of these conversions will be to minimize currencyexposure that may occur through operations. Otherwise, MIGAwill not convert one currency into another except for smallamounts required to meet certain operational needs.

Assets and liabilities are translated at market rates ofexchange at the end of the period. Capital subscriptions are statedin accordance with the procedures described below. Income andexpenses generally are translated at an average of the market ratesof exchange in effect during each month. Translation adjustmentsare charged or credited to retained earnings.

Valuation of Capital StockUnder the MIGA Convention, all payments from memberssubscribing to the capital stock of MIGA shall be settled on thebasis of the average value of the Special Drawing Right (SDR) interms of United States dollars for the period January 1, 1981 toJune 30, 1985, such value being equal to $1.082 for one SDR.

InvestmentsAs part of its overall portfolio management strategy, to diversifyits credit exposure to commercial banks and to obtain higherreturns, MIGA invests in government and agency obligationsand time deposits according to its credit risk and maturity policies.Government and agency obligations include highly rated fixedrate bonds, notes, bills, and other obligations issued or uncondi-tionally guaranteed by governments of countries or other officialentities, including government agencies or by multilateral orga-nizations.

76


During the third quarter of fiscal 1999, MIGA began in-vesting in securities classified as available-for-sale in accordancewith the new investment guidelines approved by the Board ofDirectors on November 12, 1998. Maturing investments in theheld-to-maturity were added to the available-for-sale portfoliountil the held-to-maturity portfolio had fully matured.

Investments classified as available-for-sale, which are thosesecurities that may be sold prior to maturity as part of asset/liability management or in response to other factors, are carriedat fair value with any changes in fair value reported in the BalanceSheet as a component of other comprehensive income. Inves-tments classified as held-to-maturity are carried at amortized cost.

Revenue RecognitionRevenue from premium payments for direct insurance andreinsurance contracts assumed and ceded is recognized on a pro-rata basis over the contract period. Revenue from commitmentfees, which are fees paid by investors to reserve for a limitedperiod of time guarantee capacity for future use, is recognized ona pro-rata basis over the commitment period.

Reserve for ClaimsThe reserve for claims provides for potential losses, net of futurepremiums, inherent in guarantee operations based on an esti-mation of the net present value of future premium income ascompared to the net present value of future losses related toguarantee operations. MIGA has incurred only one loss to date(see Note E). Accordingly, MIGA has computed expected futurelosses by reference to (i) the loss experiences of other insurersengaged in similar underwriting, (ii) the composition and volumeof outstanding guarantee contracts, and (iii) the worldwideeconomic and political environment. This reserve is available toabsorb future losses related to outstanding guarantees and is in-creased by provisions charged to expense and decreased by claimssettlements.

The level of provision is based upon management’s evalu-ation of potential losses, net of future premiums, that may resultfrom (i) risks that are inherent, but unidentifiable at the time of


77


reporting, (ii) unusually large concentrations of exposure to in-dividual risks, countries or guarantee contracts, and (iii) an ongo-ing assessment of MIGA’s expected recovery rates. Sufficientclaims reserves are established at the end of each year to coverall of the estimated future losses arising from contracts outstand-ing at that time on a net present value basis; future provisions arethen established to reflect changes in MIGA’s outstanding port-folio.

In the event of a formal filing of claim by an investor andupon receipt of full evidence of the occurrence of the coveredrisk, MIGA normally has between two and six months to deter-mine its liability under the contract, depending on the type ofcoverage and contract terms, and 60 days thereafter to pay theclaim.

NOTE A: INVESTMENTS

Available-for-sale portfolio: Investment securities in the avail-able-for-sale portfolio are carried at fair value. A summary of theavailable-for-sale portfolio at June 30, 2000 and June 30, 1999 isas follows:


Gross GrossAmortized Unrealized Unrealized Fair

(thousands of U.S. dollars) Cost Gains Losses ValueAt June 30, 2000

Government obligations $ 250,141 $ 358 $ 1,798 $ 248,701Time deposits 215,747 - - 215,747Total $ 465,888 $ 358 $ 1,798 $ 464,448

Gross GrossAmortized Unrealized Unrealized Fair

(thousands of U.S. dollars) Cost Gains Losses ValueAt June 30, 1999

Government obligations $ 131,837 $ - $ 1,079 $ 130,758Time deposits 232,816 - - 232,816Total $ 364,653 $ - $ 1,079 $ 363,574

The expected maturities of investment securities in theavailable-for-sale portfolio at June 30, 2000 were as follows:

78



Held-to-maturity portfolio: During the fiscal year, all securi-ties in the held-to-maturity portfolio had fully matured and wereadded to the available-for-sale portfolio.

Investments were denominated primarily in U.S. dollarswith instruments in nondollar currencies representing 8.2 per-cent (7.3 percent – June 30, 1999) of the portfolio.

NOTE B: CAPITAL STOCKThe MIGA Convention established MIGA’s authorized capitalstock at 100,000 shares with a provision that the authorized capi-tal stock shall automatically increase on the admission of a newmember to the extent that the then authorized shares are insuf-ficient to provide the shares to be subscribed by such member.At June 30, 2000, the initial authorized capital stock increasedto 101,843 (101,640 – June 30, 1999) shares. The Conventionfurther states that 10 percent of the members’ initial subscrip-tion be paid in cash, in freely convertible currencies, except thatdeveloping member countries may pay up to a quarter of the 10percent in their own currencies. An additional 10 percent of theinitial subscription shall be paid in the form of nonnegotiable,noninterest bearing promissory notes. The notes are denominatedin freely convertible currencies and are due on demand to meetMIGA’s obligations. The remaining 80 percent is subject to callwhen required by MIGA to meet its obligations.

On March 29, 1999, the Council of Governors approved aresolution increasing the authorized capital stock of MIGA by78,559 shares to be subscribed by members during the subscrip-tion period ending March 28, 2002. Of the additional capital,17.65 percent is to be paid in cash, in freely convertible currency.The remaining 82.35 percent is subject to call when required byMIGA to meet its obligations.

Amortized Fair(thousands of U.S. dollars) Cost ValueAt June 30, 2000

Due in one year or less $ 247,525 $ 247,081Due after one year through two years 154,389 153,850Due after two years through three years 45,246 44,794Due after three years through four years 18,728 18,723Total $ 465,888 $ 464,448

79


At June 30, 2000, MIGA’s authorized capital stock com-prised 180,402 shares of which 117,694 (103,653 – June 30,1999) shares had been subscribed. Each share has a par value ofSDR10,000, valued at the rate of $1.082 per SDR. Of the sub-scribed capital, $249,928,000 ($223,062,000 – June 30, 1999)has been paid in; $731,000 (731,000 – June 30, 1999) is due andthe remaining $1,022,790,000 (897,732,000 – June 30, 1999) issubject to call. Of the amounts paid in, at June 30, 2000,$102,328,000 ($102,237,000 – June 30, 1999) is in the form ofnonnegotiable, noninterest bearing demand obligations(promissory notes). A summary of MIGA’s capital stock at June30, 2000 and June 30, 1999 is as follows:


Initial Capital Capital Increase Total

Shares (U.S. $000) Shares (U.S. $000) Shares (U.S. $000)

At June 30, 2000Authorized 101,843 $1,101,941 78,559 $ 850,008 180,402 $1,951,950Subscribed 101,843 $1,101,941 15,851 $ 171,508 117,694 $1,273,449

At June 30, 1999Authorized 101,640 $1,099,745 78,559 $ 850,008 180,199 $1,949,753Subscribed 101,640 $1,099,745 2,013 $ 21,780 103,653 $1,121,525

NOTE C: GUARANTEES PROGRAM ANDCONTINGENT LIABILITIES

Guarantees Program. MIGA offers guarantees or insuranceagainst loss caused by noncommercial risks (political risk insur-ance) to eligible investors on qualified investments in developingmember countries. MIGA insures investments for up to 20 yearsagainst four different categories of risk: currency transfer, expro-priation, war and civil disturbance, and breach of contract.Insurance for currency transfer protects the investor from lossesarising from an inability to convert local currency returns andproceeds from the liquidation of the investment project into for-eign exchange for transfer outside the host country. Insurancefor expropriation protects the investor against partial or totalloss of the insured investment as a result of acts by the host gov-ernment that may reduce or eliminate ownership of, control over,or rights to the insured investment. Insurance for war and civildisturbance protects the investor against losses from damage to,

80



or the destruction or disappearance of tangible assets caused bypolitically motivated acts of war or civil disturbance in the hostcountry. Insurance for breach of contract protects the investoragainst the impossibility to obtain or to enforce an arbitral orjudicial decision recognizing the breach of an obligation by thehost government. Investors may insure projects for any combi-nation of the four types of coverage. MIGA guarantees, otherthan those issued as reinsurance, cannot be terminated unilaterallyby the guarantee holder within the first three years from thedate of issuance. Premium rates applicable to issued contractsare fixed for five years. Payments against all claims under a guar-antee may not exceed the maximum amount of coverage issuedunder the guarantee.

As approved by the Board of Directors and the Council ofGovernors, the maximum aggregate amount of contingent liabili-ties that may be assumed by MIGA is 350 percent of the sum ofMIGA's unimpaired subscribed capital and its reserves plus suchportion of the insurance ceded by MIGA through contracts ofreinsurance as the Board of Directors may determine. Accordingly,at June 30, 2000, the maximum level of guarantees outstandingmay not exceed $6,933,749,000.

Contingent Liability. The maximum amount of contingent li-ability of MIGA under guarantees outstanding at June 30, 2000totaled $4,364,812,000 ($3,675,475,000 – June 30, 1999). Themaximum amount of contingent liability is MIGA's maximumexposure to insurance claims, which includes "standby" coveragefor which MIGA is committed but not currently at risk. At June30, 2000, MIGA's estimate of its actual exposure to insuranceclaims exclusive of standby coverage was $2,329,948,000($1,945,571,000 – June 30, 1999). At June 30, 1999, approxi-mately 43 percent of the contingent liability represents guaran-tees issued that will expire on or after June 30, 2010.

As of June 30, 2000, additional guarantee capacityamounting to $117,000,000 has been committed ($105,459,000– June 30, 1999)

Claim Activity. In June 2000, MIGA paid its first claim, an ex-propriation claim related to a power project in Indonesia, amount-ing to $15,000,000, of which 70 percent was reinsured. Netamount paid by MIGA was $4,500,000.

81



NOTE D: REINSURANCEAlthough MIGA obtains quota-share and facultative reinsuranceto augment its underwriting capacity and to protect portions ofits insurance portfolio, it remains responsible to the insured cli-ent for the entire amount of the insurance contract. Of the$4,364,812,000 outstanding contingent liability (gross exposure)as at June 30, 2000 ($3,675,475,000 – June 30, 1999),$1,548,856,000 was ceded through contracts of reinsurance($1,067,933,000 – June 30, 1999). Net exposure amounted to$2,815,956,000 as at June 30, 2000 ($2,607,542,000 – June 30,1999).

MIGA also can provide both public (official) and privateinsurers with facultative reinsurance. As of June 30, 2000, totalinsurance assumed by MIGA, primarily with official investmentinsurers, amounted to $124,472,000 ($110,140,000 – June 30,1999).

Estimated reinsurance recoverables have been determinedbased upon a review of the selected contracts in force and otheravailable information.

Premiums relating to direct, assumed, and ceded contractsfor the fiscal years ended June 30, 2000 and June 30, 1999 wereas follows:

(thousands of U.S. dollars) 2000 1999Premiums written

Direct $ 39,980 $ 34,211Assumed 2,207 1,885Ceded (16,663) (10,270)

Premiums earnedDirect 35,062 28,590Assumed 2,381 2,133Ceded (13,037) (8,000)

NOTE E: RESERVE FOR CLAIMSMIGA’s gross reserve for claims as of June 30, 2000 amounted to$375,700,000 ($340,000,000 – June 30, 1999).

82



Changes to the gross reserve for claims for the fiscal yearsended June 30, 2000 and June 30, 1999 were as follows:

(thousands of U.S. dollars) 2000 1999

Balance, beginning of the fiscal year $ 340,000 $ 255,100Provision for claims-net 26,625 23,269Estimated reinsurance recoverables 14,300 61,900Claim paid (4,500) -Translation adjustment (725) (269)

Balance, end of the fiscal year $ 375,700 $ 340,000

NOTE F: STAFF RETIREMENT PLANThe World Bank Group has a defined benefit retirement plan(Plan) covering substantially all of MIGA’s staff. The Plan alsocovers substantially all the staff of IBRD and IFC. Under the Plan,benefits are based on the years of contributory service and thehighest three-year average of pensionable remuneration as definedin the Plan, with the staff contributing a fixed percentage ofpensionable remuneration, and the World Bank Groupcontributing the remainder of the actuarially determined cost offuture Plan benefits. The actuarial present values of Planobligations throughout the fiscal year are determined at thebeginning of the fiscal year by the Plan’s actuary. MIGA’s totalcontribution to the Plan is based upon the aggregate fundingmethod. All contributions to the Plan and all other assets andincome held for the purposes of the Plan are held separately fromthe other assets and income of the World Bank Group and can beused only for the benefit of the participants in the Plan and theirbeneficiaries, until all liabilities to them have been paid orprovided for. Plan assets consist primarily of equity and fixedincome securities, with small holdings of cash, real estate andother investments.

Net periodic pension income allocated to MIGA andincluded in income from Staff Retirement Plan for the fiscal yearended June 30, 2000 was $2,576,000 ($3,740,000 – June 30, 1999).

NOTE G: OTHER POSTRETIRMENT BENEFITSIBRD provides other postretirement benefits for eligible activeand retired World Bank Group staff, including MIGA. These ben-efits can be grouped under two major types, i.e. health care and

83


life insurance benefit and the pensions administered outside ofthe Staff Retirement Plan (discussed in Note F). IBRD has desig-nated assets to fund these liabilities.

During the fiscal year ended June 30, 1998, the World BankGroup reviewed the status of the postretirement benefits anddetermined that the net assets and liabilities did not qualify foroff-balance-sheet accounting. Consequently, at June 30, 1998,the assets and liabilities were recorded on IBRD’s balance sheet.

At June 30, 2000, MIGA has included in other assets aprepaid postretirement benefits cost of $135,000 ($324,000 –June 30, 1999) relating to its share of the postretirement benefitsnet assets. Expense resulting from the decrease in MIGA’s shareof these net assets for the fiscal year ended June 30, 2000 was$189,000 ($174,000 – June 30, 1999).

NOTE H: SERVICE AND SUPPORT FEEThe IBRD charges MIGA an annual Service and Support Fee,which for the fiscal year ending June 30, 2000, amounted to$984,000 ($860,000 – June 30, 1999).

NOTE I: COMPREHENSIVE INCOMEDuring the third quarter of fiscal 1999, MIGA adopted theStatement of Financial Accounting Standards (SFAS) No. 130,“Reporting Comprehensive Income”. SFAS No. 130 defines andestablishes the standards for reporting comprehensive income.Under SFAS No. 130, certain items that historically were notrecognized in the calculation of net income are now included inthe broader definition of comprehensive income. Comprehen-sive income has two major components: net income and othercomprehensive income. Other comprehensive income comprisesunrealized gains and losses on available for sale investments andcurrency translation adjustments.

NOTE J: ESTIMATED FAIR VALUESThe estimated fair values of MIGA's cash and nonnegotiable,noninterest-bearing demand obligations are assumed toapproximate their carrying values. The estimated fair value ofMIGA's investments shown in Note B is based on marketquotations. The estimated fair values are only indicative ofindividual financial instruments' values and should not be con-sidered an indication of MIGA’s fair value.


84


REPORT OF INDEPENDENT ACCOUNTANTS

President and Board of GovernorsMultilateral Investment Guarantee Agency

We have audited the accompanying balance sheets of theMultilateral Investment Guarantee Agency, as of June 30, 2000and 1999, including the statement of subscription to capital stockand voting power and the statement of guarantees outstandingas of June 30, 2000, and the related statements of income, com-prehensive income, changes in shareholders’ equity and cash flowsfor the years then ended. These financial statements are the re-sponsibility of the Multilateral Investment Guarantee Agency’smanagement. Our responsibility is to express an opinion on thesefinancial statements based on our audits.

We conducted our audits in accordance with InternationalStandards on Auditing and generally accepted auditing standardsin the United States of America. Those standards require thatwe plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material mis-statement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial state-ments. An audit also includes assessing the accounting principlesused and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, inall material respects, the financial position of the MultilateralInvestment Guarantee Agency as of June 30, 2000 and 1999 andthe results of its operations and its cash flows for the years thenended in conformity with International Accounting Standardsand generally accepted accounting principles in the United Statesof America.

July 31, 2000

555 12th Street NWWashington, DC

FINANCIAL OVERVIEW AND FINANCIAL STATEMENTS€¦ · 84 Report of Independent Accountants. 62 MIGA...

Documents

Transcript of FINANCIAL OVERVIEW AND FINANCIAL STATEMENTS€¦ · 84 Report of Independent Accountants. 62 MIGA...