1st July 2003
African Trade Insurance Agency (ATI) to Reinsure Belgian Export Credit Agency and Lloyd’s of London Syndicates
Million Reinsurance Policy to Help Kenya Further Develop Mobile Phone Network
NAIROBI, Kenya, 22nd July 2003 — The African Trade Insurance Agency (ATI), the continent’s only pan-African, multilateral export credit and political risk agency, today announced that it is to issue a comprehensive reinsurance policy for L’Office National du Ducroire (ONDD), the Belgian Export Credit Agency and Lloyd’s of London syndicates, Wellington, Catlin and GoshawK. Reinsurance is the assumption by one insurance company of all or part of a risk assumed by another insurance provider.
The policy, which was placed through JLT Group PLC, the London headquartered publicly quoted insurance broker which specialises in the placement of political risk coverage, will cover Comprehensive Trade Political Risks, which includes the risk of non-payment by the buyer. It will cover ?14 million of business and is in the form of a reinsurance of primary coverage which ONDD and the Lloyd’s syndicates are providing to Citibank, Kenya in their financing of the development of Kenya’s mobile phone network. The announcement comes only three months after ATI announced that it would underwrite cross border non-payment risks on parastatals (state owned enterprises).
The transaction involves the supply and installation of GSM (Global System for Mobile Communication) equipment, the most widely used digital phone standard in the world, to Safaricom Limited, Kenya’s leading mobile telephone provider, by Siemens Atea, Belgium. Safaricom was created in 1997 as a parastatal. In May 2000 Vodafone Group Plc acquired a 40% stake.
Non-Payment cover is being provided to Citibank, Kenya which is the arranger of a financing deal for the project involving a number of Kenyan and international banks; including Barclays Bank of Kenya Limited, Citibank NA, Commercial Bank of Africa Limited, National Industrial Credit Bank Limited, Stanbic Bank Kenya Limited and Standard Chartered Bank Kenya Limited.
ATI is reinsuring 50% of ONDD’s 70% share of the original business, which amounts to € 14 million. This amount is being carried partly by other Lloyd’s syndicates, some of which are, in turn, being reinsured by ATI. The total contract value of the transaction is 2.5 billion Kenya Shillings, equivalent to approximately € 30 million.
Bernie de Haldevang, ATI’s Chief Executive and Managing Director, welcomed the news:
“This is a major transaction for ATI and is an excellent example of how innovative risk insurance products can play a vital role in boosting trade, investment and infrastructure development in Africa. By providing reinsurance cover to ONDD and Lloyd’s Syndicates, we are developing a favourable environment for investment and helping Kenya strengthen its communications infrastructure. The knock-on effects will be greater private sector investment in the country and increased growth.”
He continued:
“Before the commencement of ATI’s commercial operations in April 2002, there were significant gaps in the political risk insurance market with cover from commercial sources or export credit agencies not available for some African countries, and where it was, very costly and only on unfavorable very short terms. ATI is realising its goal by changing the trade and investment landscape in Africa. No longer can companies use political risk as a reason not to invest. The policy also demonstrates how ATI can help Kenyan banks acquire and digest significant portions of commercial trade risk. We look forward to working closely with this sector in the future”
The expansion of mobile phone services in Kenya through its two mobile phone companies – Safaricom and Kencell – is viewed by the government as playing a crucial role in the development of all sectors of the economy.
By the end of February 2003, there were 1.6 million mobile phone users in Kenya (as opposed to 320,000 fixed lines) – up from 20,000 in September 1999 before the sector was liberalised. In late June 2003, Safaricom announced its intention to upgrade its network and double its subscriber base to 1.5 million by mid-2004.
ATI has been providing political risk cover in partnership with Lloyd’s of London and other commercial political and risk and credit insurers on cross border transactions involving its African member states, since the commencement of its commercial operations in April 2002.
The governments of ATI’s member countries have agreed to participate jointly with private sector underwriters as ultimate risk takers, thus creating a strong incentive to prevent and mitigate claims. It is estimated that risks underwritten under ATI’s initial mandate could generate as much as $5 billion over ten years in additional trade for its member countries.
Beneficiaries will include foreign firms exporting goods and/or services to participating African countries; foreign financial institutions financing exports; and African companies from participating countries, that are exporting goods or services.
In December 2001, ATI signed an agreement with Gerling NCM and Gerling Credit Emerging Markets (GCEM) to allow companies trading to and within Africa to buy insurance protection against non-payment by their buyers.
Note to Editors
ATI was established at the Common Market for Eastern and Southern Africa (COMESA) Summit of Heads of State in May 2000 and launched by President Museveni of Uganda in Kampala in August 2001 in the presence of ten Heads of State and Government. Start-up funds of $105 million were provided by the International Development Association (IDA), the concessional lending arm of the World Bank, through the Regional Trade Facilitation Project, which was approved in April 2001.
World Bank funds are placed in off-shore trust accounts and are leveraged by private insurers to providing additional insurance capacity. The leverage ratio can be as high as 1:5. ATI became operational in April 2002 when the first 25% tranches of the IDA funds were disbursed.
Risks eligible for cover include financial losses due to Non payment by State-owned Enterprises; Embargos; Expropriation; Government interference with entities owing insured obligations; Inability to convert or transfer currency; Imposition or increase of import or export taxes of a discriminatory nature; Interference with the transportation of goods; Seizure of Goods; Prevention of Sale; Prevention of Export; and War or Civil Disturbance as well as physical damage losses due to events of War and Terrorism.
Eligible transactions to be insured include: Sale of goods, usually on credit terms; Letter of credit confirmation; Financial lease; Operational lease; Import/export of capital equipment for use by an insured in carrying on its business; Loans by foreign lenders; Loans by local lenders; Foreign Direct Investments; Contract/performance bonds; Import/export of goods to stock for sale; Import/export of goods for processing; and Services.
