Focus Media (Kigali)
Sam Ruburika
4 November 2009
African Trade Insurance Agency (ATI), an African international financial institution that offers credit risk and political risk insurance, has extended its activities to Rwanda with the aim of introducing its services to the private sector.
Formed in 2001, ATI is an agent of 14 African governments, with Rwanda being a founding member. It was mandated to promote trade and investment in and out of Africa. There are currently nine full ATI member states: Burundi, DRC, Kenya, Madagascar, Malawi, Rwanda, Tanzania Uganda and Zambia, while Djibouti, Sudan, Ghana, Liberia and Eritrea are waiting to become members.
Through credit risk insurance, companies involved in import and export are insured against nonpayment, protracted payment, and insolvency. The ATI insurance policy covers not only international debtors but also domestic ones. It protects its policy holders against payment failure due to bankruptcy, deteriorating financial circumstances or if payment extends beyond the credit period for a specific buyer.
"If a debtor fails to pay in 180 days, we consider this to be a protracted payment and pay indemnity to our policy holder," said Cecilia B. Rague-Kaisha, an underwriter at ATI.
She pointed out the agency insures a credit period up to one year. She pointed out that ATI can also provide insurance to cover pre-shipment risk and that it can also insure obligors (companies that prefer to be insured per shipment instead of on an annual basis).
In this type of insurance, vast amounts of resources are required which local insurance companies cannot be able to raise. ATI member states contribute at least US$ 9.5 million.
"We have an underwriting capital of over US$ 85 million, which can support businesses worth ten times that amount," Rague-Kaisha said during a one-day workshop to sensitize the private sector about the agency's services.
Political risk
Apart from the credit insurance, ITA also offers political risk insurance which covers mainly investors and suppliers to protect themselves against government action, inaction or interference that could result in a financial loss. Specifically, risks covered include expropriation, transfer restriction, war, civil disturbance, embargo and arbitrary reward defaults.
Rague-Kaisha explained that currently ATI has two political risk insurance clients in Rwanda who have insured their buildings for US$ 20 million US$ 2-3 million respectively.
"We are expecting two more transactions in the coming month, one for credit insurance and the other for political insurance," Rague-Kaisha pointed out.
While many institutions and companies are still reeling from the effects of the economic and liquidity crunch, ITA's business has boomed as banks, insurance companies and other institutions have continued to insure with it.
"Last year, we closed with a gross written premium of US$ 1.9 million, and we expect to close this financial year with US$ 4.5 million," Rague- Kaisha stated.
Yet credit insurance still is a new concept in the region, with just five Kenyan companies having been the major beneficiaries of credit insurance policy. This was also evident from the reactions from a group of local businessmen attending the workshop, who keenly listened to the presentation.
It emerged that their primary concern lay with the premiums to be paid. In this regard, Rague- Kaisha explained that the premium is calculated depending on various aspects such as turnover, type of risk insured, country and the type of goods insured.
She advised the business entities dealing with import and export that, although there are other companies on the international market conducting similar business, their charges are usually higher than ITA's. The reason for this, she said, is that international insurers take it for granted that most African countries have political crises, and thus charge higher premiums.
"They do not differentiate between let say Rwanda and the DRC," Kaisha said. "Yet 'political crisis' is always an issue of perception."
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