One of the important issues on the agenda of the second annual meeting of the Aman Union, the organization of investment and export credit agencies in the Arab and
Islamic World, which is due to be held on Oct. 4-5 in Istanbul under the aegis of the Turk Eximbank, are the challenges facing the export credit insurance industry especially insuring risks in post-conflict countries and those undergoing economic and political transformation. (source)
The prime movers behind the Aman Union are the Jeddah-based, Islamic Corporation for the Insurance of Export Credit and Investment (ICIEC), the stand alone export credit agency entity of the Islamic Development Bank Group (IDB), and Dhaman (the Arab Investment and Export Credit Guarantee Corporation). The union's aim is to enhance cooperation among Arab and Islamic export credit institutions; to encourage the development of investment and export credit insurance industry in its member countries; and to offer technical assistance to establish new agencies while also enhancing the insurance capacity of existing agencies.
The political transformation in the MENA region, maintains Abdel Rahman Taha, CEO of ICIEC and the pioneer of Shariah-compliant export credit and political risk insurance, will present new opportunities of ICIEC and any other insurer of political risk. "We feel that the fundamentals are sound. Indeed, the corporation is ready to take calculated risks in countries where the political crisis is contained. However, it is inevitable that the crisis will eventually generate more business. In short, the region has both challenges and opportunities, and ICIEC will deal with them accordingly."
Indeed the corporation confirms that opportunities for export credit, investment insurance and retakaful business are on the rise as a result of the recent political turmoil in the region. These countries have long been perceived to be stable, and that perception has been shattered by the quickly evolving situation. The natural upshot of the upheavals in the region, says Taha, is to force exporters and investors to take note of the necessity of credit and political risk insurance. The corporation is already seeing a rise in inquiries and applications primarily for short term export credit insurance and some medium-term political risk insurance. Consistent with previous years, short-term operations comprised the bulk of ICIEC's business in 2010, accounting for 89 percent of total ICIEC business, whilst the remaining portion was attributable to medium-term and investment insurance operations, which is in line with the industry trend. Short-term business, for instance, constituted 82 percent of the new business of the Bern Union in 2009.
ICEIC in fact announced at its 64th board of directors (BoD) meeting which was held in August 2011 in Jeddah that its business insured in first half of 2011 had increased by 96 percent to reach $1.50 billion, and that new commitments approved during the second quarter of 2011 reached $1.31 billion as compared to $492 million during the same period last year, an increase of 165 percent. The total new commitments for the first half of 2011 reached $1.99 billion, which is 128 percent of the target set for the period.
Similarly, according to ICIEC, the business insured during the second quarter of 2011, which represents implemented insured shipments and projects, reached $870 million compared to $478 million during the same period last year, an increase of 82 percent.
ICIEC's operational optimism is based on two important decisions taken at the 18th annual meeting of its board of governors which was held in Jeddah in June in conjunction with the 38th annual meeting of the IDB Group. The board of governors approved an increase in the authorized capital of ICIEC from $240 million to $640 million and a resolution allowing financial institutions and business enterprises in its member countries to participate in the capital of the corporation through a special class of shares.
"This increase in the capital resources of ICIEC," maintains Taha, "will significantly enhance the insurance capacity of the corporation and enable it to meet the huge demand for ICIEC's credit and country risk insurance services from exporters and investors in its member Countries."
One short-term product that continues to gain popularity in the market especially Turkey and the GCC countries, is ICIEC's Documentary Credit Insurance Policy (DCIP). In Turkey for instance, ICIEC issued its first DCIP for Kuveyt Turk Participation Bank in October 2010, but by May this year it had already issued its third DCIP with another participation bank, Bank Asya, and more enquiries are coming in. Similarly, in May 2011, ICIEC issued a DCIP to The Saudi British Bank (SABB) in Riyadh that provides the bank with coverage for letters of credit (LCs) confirmed by it. This, says ICIEC, will enable SABB to increase its capacity for LCs issued by foreign banks while helping it to effectively manage some of its international bank risks.
However, in June 2011 ICIEC issued its fourth DCIP in Turkey, but this time with a local conventional bank, Aktifbank, which already operates as a local agent of ICIEC in the Turkish market. Under this policy, ICIEC covers the LCs confirmed by Aktifbank. ICIEC's DCIP will help Aktifbank to extend its LC confirmation portfolio, particularly in some challenging countries where Aktifbank would normally not confirm LCs without ICIEC's support.
"It is also worth mentioning that Turkish exporters have lately begun exploring and penetrating new markets that are considered to be relatively high risk, especially markets in Africa. This product will support Turkish LC confirming banks to enhance their confirmation capacity and enable them to accept risks that have been traditionally difficult to undertake," said ICIEC in a statement.
The main services that ICIEC provides in Turkey are medium term export credit insurance, investment insurance and insurance of letters of credit in favor of banks, reinsurance of Turk Exim Bank in addition to short-term credit insurance for non-clients of Turk Exim Bank. These services are channeled through ICIEC's local agents in Turkey, Aktif Bank and PGlobal Advisory Services; through Turk Exim Bank, Turkish banks and major international and local brokers in Turkey.
ICIEC sees good potential for the Insurance of letters of credit to be confirmed by Turkish banks, a product that enables Turkish banks to enhance their confirmation capacities on banks from importing countries and to extend their confirmation business to more countries.
