AfDB, ATIA, others agree $500m credit insurance deal

The African Development Bank (AfDB) (www.AfDB.org) and African Trade Insurance Agency (ATI) have announced the successful completion of a US$500 million credit insurance deal structured to cover a portion of AfDB’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, 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 AfDB’s US$2.3 billion outstanding non-sovereign financial sector portfolio. Specifically, it will protect it 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.

Launching the transaction in London, 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.