Tusekile Kibonde Resident Underwriter – Tanzania November 2015 Dar es Salaam, Tanzania...
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Transcript of Tusekile Kibonde Resident Underwriter – Tanzania November 2015 Dar es Salaam, Tanzania...
Tusekile KibondeResident Underwriter – Tanzania
November 2015Dar es Salaam, Tanzania
Introduction to Political Risk Insurance & Underwriting
“Compared to 2011, Africa today seems more risky than during the Arab Spring.”
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
Possible Solutions
Z$1
.9 m
Focus on Assets & Receivables
Overview of Political Risk Insurance
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
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.
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
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.
.
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.
Underwriting of Political Risk Insurance
13
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
14
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$100 million
Indemnity - Insured Percentage: Up to 100% (Political Risks)
Waiting Period: 180 days
Pricing & Payment
Key Questions
Pricing:Price to risk, depends on perils being insured, country risk, tenure and bank’s margins among others 1.5% to 3.2% p.a. Minimum Premium:
US$ 3,000
Flexible Premium Payment: Pricing/premium rate. Payable up front, annually. Other options can also be negotiated
Case Examples
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
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
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
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
Questions?