One of the important issues to emerge from the second annual meeting of the Aman Union, the association of investment and export credit agencies in the Arab and Islamic world, which was held in Istanbul last week under the aegis of the Turk Eximbank, is the increased demand for political risk insurance especially insuring risks in post-conflict countries and those undergoing economic and political transformation. This is especially from those countries whose exporters are active in the OIC countries. (source)
In fact, one such country is Turkey, whose state-owned national export credit agency (ECA), Turk Eximbank, one of the long-established ECA's in the Muslim world, signed a Memorandum of Understanding (MoU) with the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC), the standalone ECA of the Jeddah-based Islamic Development Bank Group (IDB). The MoU was signed by Abdel Rahman El-Tayeb Taha, the chief executive officer of ICIEC, and Hayrettin Kaplan, the general manager of Turk Eximbank at the sidelines of the 2nd annual meeting of Aman Union (the association of Arab and Islamic Export Credit Agencies).
Under the agreement, the two entities aim to help Turkish investors and contractors doing business in the member countries of the Organization of Islamic Cooperation's (OIC). ICIEC, specifically aims to provide political risk insurance (PRI) to Turkish companies doing business in ICIEC member countries.
There is strong demand for PRI from Turkish companies especially after the recent political turbulence in the Middle East. Turkish companies, stressed the two signatories, will benefit from the cooperation between ICIEC and Turk Eximbank by insuring their investments against the risk of war, civil disturbances, expropriation, transfer restrictions, and non-honoring of sovereign financial obligations of the host country. Both institutions strongly believe that by joining hands they will meet the needs of Turkish companies for political risk insurance and thereby encourage them to invest in OIC member countries.
The political transformation in the MENA region, maintains 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."
According to Taha, "Turkish companies are very active in doing business in OIC member countries especially in the Middle East, Africa, and CIS countries; this is where ICIEC's expertise lies. On the other hand, Turk Eximbank is the first address that any Turkish company can think of for the insurance of export credit. Therefore it is natural that the two institutions cooperation to provide this critical service to Turkish exporters. ICIEC is also active in Turkey, since it has signed more than 11 insurance policies in favor of Turkish banks and investors". Recently signed an investment policy of 75 million euros in favor of a Turkish investor in one of ICIEC's member countries. The insurance policy protects the investor against the risks of war & civil disturbance, expropriation and transfer restrictions that may arise in the host country in the coming 5 years."
Turk Eximbank has provided insurance coverage and lending facilities to Turkish exporters and contractors operating in the Middle East, Africa and OIC member countries.
Following the Turkish rapprochement with the Middle East in the 1980s, Turkish contractors alone amassed orders in excess of $20 billion between 1980 to1999 especially in the GCC countries and Libya.
Over the last few years, the government of Recep Tayyip Erdogan has been forging another rapprochement with the Middle East in the wake of the global financial crisis which has affected Turkish exports to the European Union and the US; deteriorating relations between Ankara and Israel overt the latter's refusal to apologize for the deaths of several Turkish activists at the hand of Israeli soldiers who attacked a flotilla carrying aid to the Palestinian territory of Gaza; and Erdogan's leadership in encouraging the so-called Arab Spring countries toward a greater domestic democratic dispensation.
The ICIEC/Turk Eximbank agreement, in the context of growing Turkish-Middle Eastern trade ties, says Kaplan "will enhance the capacity of Turk Eximbank's activities in those countries by providing co-insurance and re-insurance facilities. Moreover a new instrument, investment insurance, which is run by ICIEC, will be available to Turkish exporters, contractors and investors through Türk Eximbank. The agreement will pave the way to collaborate in the countries of operations and share experience and knowledge at the same time."
One short-term product that continues to gain popularity in the market especially in Turkey is ICIEC's documentary credit insurance policy (DCIP). By June 2011 ICIEC had issued its fourth DCIP in Turkey to date, but this time with a local conventional bank, Aktifbank, which already operates as a local agent of ICIEC in the Turkish market. The other 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.
The prime movers behind the Aman Union are the Jeddah-based ICIEC, 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.
However, the second annual meeting of the Aman Union in Istanbul last week which was attended by delegates representing over 70 ECAs in addition to financial institutions, reinsurance, credit information and debt collection companies and which was opened by Hayrettin Kaplan of TürkEximbank and chairman of the general assembly of Aman Union; Souheila Chabchoub, chairman and general manager of COTUNACE and chairman of the executive council of Aman Union; and Fahad Al-Ibrahim, director general of Dhaman and Secretary General of Aman Union, also revealed the scale of the export credit and political risk insurance challenge for the Arab and Muslim countries.
According to the 2010 annual report of the Aman Union which was unveiled in Istanbul, the insured business of member countries reached a mere $15.06 billion against $13.02 billion in 2009 generating $122.82 million of premium income against $72.91 million in 2009. Paid claims year on year increased from $22.88 million to $23.88 million and recoveries fell from $69.4 million to $28.9 million.
This means that there is massive untapped underwriting capacity in this sector running into hundreds of billions of dollars which remain untapped because of the underdeveloped culture of export credit and political risk Takaful or insurance.
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.
The third annual meeting of the Aman Union will be held in Malaysia. The proposed agenda for that meeting will include bonds insurance including third party sukuk guranatees; cooperation among members in the field of reinsurance; new credit insurance products such as exchange risk insurance; and the role of central banks roles in supporting ECA actıvıtıes.
