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African Development Bank launches landmark US$500 million credit insurance deal with African Trade Insurance Agency and UK reinsurers
The African Development Bank (AfDB) and African Trade Insurance Agency (ATI) announce the successful completion of a US$500 million credit insurance deal structured to cover a portion of the Bank’s portfolio of non-sovereign operations in Africa.
This transaction is expected to have an important demonstration effect to encourage similar institutions to invest more on the continent in the future.
While ATI will be the direct insurer facing the African Development Bank, the transaction involves the participation of a number of Lloyd’s & Company private reinsurers who will share the risk on African financial institutions. This vehicle will enable many insurance companies operating outside Africa to participate in the financing of development in Africa for the first time.
The deal is the second Balance Sheet Optimization transaction under the “Room to Run” initiative following the successful signing of the Synthetic Securitization transaction in September.
The insurance will cover approximately 22% of the Bank’s US$2.3 billion outstanding non-sovereign financial sector portfolio. Specifically, it will protect the Bank against the non-payment of loans made to approximately 30 African financial institutions. The portfolio spans the African continent, with exposure to financial institutions in all major regions of the continent, and is expected to release sufficient capital to create almost US$500 million of headroom for new lending.
“This transaction leverages the Bank’s own capital to achieve more development and lending as it creates new pathways for collaboration between private insurers and the Bank in the development of the African continent,” said Akinwumi Adesina, President of the African Development Bank Group. “This is a significant step towards enhancing Africa’s finance partnerships across the globe.”
Adesina added that, given Africa’s endowment as a resource-rich continent with a strong economic outlook, the Bank had adopted more efficient and effective initiatives to bridge the existing development financing gaps.
Penny Mordaunt, International Development Secretary commented, “This is a great example of how the City of London can partner with African institutions to mobilise more investment for developing countries and support the creation of the 18 million new jobs a year which Africa needs. This work is driving economic development abroad and supporting prosperity at home”.
The transaction is also expected to strengthen the development of credit insurance markets in Africa. The experience and comfort gained in transferring risks between the African Development Bank, the African Trade Insurance Agency and the Lloyd’s reinsurers is expected over time to lead to the lengthening of insurance terms and lower insurance and financing costs, leading to more trade and investment in, and among, the private sector and the African region.
“With ATI’s insurance guarantees leveraging the balance sheet of AfDB and crowding-in new investments, this innovation provides a timely solution to the scarcity of trade finance that could create enormous impact across the continent. ATI’s commitment reflects the US$35 billion worth of trade and investments that we have supported in the past decade, which, thanks to this model, can now be more easily replicated, to the ultimate benefit of Africa” said George Otieno, Chief Executive Officer of ATI.
RFIB commented, “RFIBs Political Risk & Trade Credit team (PRTC) are delighted to have been able to assist the African Development Bank and ATI in putting together this significant insurance-backed programme that will allow the Bank to facilitate further lending, promoting further development in Africa.”
This landmark transaction between AfDB and ATI is one of several recent initiatives undertaken by the Bank under its “Room to Run” program that responds to the G20 and G7 call on the multilateral development banks (MDBs) to explore innovative ways to optimize their balance sheets to achieve the “Billions to Trillions” development agenda. Credit insurance is one of such instruments involving a specialized market with currently low penetration in Africa, but intent on playing a more active role.
About the African Development Bank Group
The African Development Bank (AfDB) Group is the premier development finance institution in Africa with a mandate to spur sustainable economic development and social progress in the continent, thereby contributing to poverty reduction. The Bank Group achieves this objective by mobilizing and allocating resources for investment in the continent; and providing policy advice and technical assistance to support development efforts. The African Development Bank's authorized capital of around US$100 billion is subscribed to by 80 member countries made up of 54 African countries and 26 non-African countries.
About African Trade Insurance Agency (ATI)
ATI was founded in 2001 by African States to cover the trade and investment risks in its African member countries including the risks of sovereign and corporate non-payment and contractual breach. As of YE 2017, ATI has supported US$35 billion in trade and investments across Africa and in multiple sectors. Since 2008, ATI has maintained an ‘A’ rating for Financial Strength and Counterparty Credit by Standard & Poor’s. ATI has 23 shareholders, including 14 African countries and nine institutional shareholders, including AfDB.
About RFIB Group Ltd
From its headquarters in the heart of the City of London’s insurance sector and a number of offices in major international centres, RFIB provides excellent service across its specialist lines of business. We provide focused, effective and tailor-made solutions for our clients. Its specialist PRTC team is highly experienced in arranging innovative insurance solutions for entities involved in international trade and investment.