September 13, 2021
By Jeff Abramson
Head of Special Risks, Global Political Risk, Credit & Bond, AXA XL
When the COVID-19 pandemic began challenging supply chains and international trade in 2020, export credit agencies, Development Finance Institutions and Multilateral Development Agencies all stepped up to respond with financing programs to address the crisis. And although these entities continue to provide important support for trade and development finance on their own, they have good reason to leverage the private market not only to address the impacts of COVID but to maintain economic growth into the future.
Government relief and stimulus programs are preserving opportunities for trade and investment, but the United Nations estimates there is a in the investment needed to achieve the U.N. Sustainable Development Goals by 2030. Public-sector financing cannot make up this amount on its own. Therefore, a partnership approach between the public and private sectors is needed.
A survey by the found that 43% of government-supported export credit agencies had increased their short-term financing activity in 2020 and 64% took measures intended to boost working capital support. On the other hand, data compiled by the showed that medium- and long-term export financing, typically dedicated to facilitating key infrastructure projects in emerging markets, decreased in the first half of 2020.
Support from private market
The private insurance market is capable of providing not only significant financial support but also risk management to help address the development finance gap. In partnership, ECAs, multilaterals, DFIs and private credit insurers can offer effective solutions for short- as well as medium- and long-term financing needs.
Many observers tend to view insurance companies’ participation in development finance only from the asset side of insurers’ balance sheets. That is, they consider finance primarily as funds provided through direct investment or lending to supplement capital for development projects. But the insurance part of insurance companies, which take on liabilities via their underwriting of risks for customers, also plays a meaningful role in development finance. Political risks, nonpayment and contract frustration are all potential risks that constrain the deployment of development capital by other actors and can prevent or delay projects from reaching completion and disrupt trading relationships.
Political risks, nonpayment and contract frustration are all potential risks that constrain the deployment of development capital by other actors and can prevent or delay projects from reaching completion and disrupt trading relationships.
Fortunately, there is a robust market for political risk and credit insurance that can help mitigate risks and facilitate the expansion of development finance. These coverages can play an important role for financiers by offering protection in a variety of risk scenarios, including:
- Political risk. This form of insurance is designed to respond to confiscation, expropriation, nationalization, deprivation, and forced abandonment or divestiture. It also can cover losses resulting from currency inconvertibility and exchange transfer. Political violence such as strikes, riots, civil commotion, terrorism and war, also can be covered. Contract frustration from sovereign or non-sovereign public sector payment obligations is another source of loss that political risk insurance can cover.
- Credit Risk. Losses that result from nonpayment of either individual transactions or portfolios involving private-sector payment obligations can be insured. Credit insurance is available for individual projects, infrastructure development, structured finance, trade and non-trade activities.
In addition to responding to a wide variety of risk scenarios across many industry sectors, private political risk and credit insurance can support transactions and investments in challenging markets. These coverages also can be written for long tenors, or duration. Especially in emerging and developing markets, projects and development may take years to complete or become operational. Private insurance can be extended for up to 20 years, which is beyond the tolerance of many other classes of investors.
色多多视频has a long history of providing political risk and credit insurance and mitigating exposures around the world for export credit agencies, multilaterals, banks and corporate organizations. This represents both good business and a means of contributing directly to improving the lives of millions of people around the globe.
With an AA- rating from Standard & Poor's and an A+ financial strength rating from A.M. Best, 色多多视频is one of very few companies that can provide customers with the highest level of financial strength and capital relief. For more information on Political Risk, Credit and Bond solutions, please visit axaxl.com.
About the Author
Jeffrey Abramson is Head of Special Risks in AXA XL's Global Political Risk, Credit and Bond division. Before joining XL Catlin in 2013, where he was global head of trade receivables insurance, he was a senior executive at the Export-Import Bank of the United States. Abramson has more than 25 years of experience in international finance and risk management. He is a Chartered Financial Analyst.
