We caught up with Mr Mohamud Khalif, ICIEC’s Senior Manager for Underwriting, to shed more light on ICIEC’s core business function, emerging insurance trends, ICIEC’s role in the Berne Union and the department’s future goals.
Q: Can you please tell us about yourself and, more broadly, your role at ICIEC?
MK: My official title is Senior Manager, and I have been with ICIEC for close to 19 years. I joined the Corporation as a young professional, and in the beginning, I also did some work within the Islamic Development Bank (IsDB) itself. Over the years, I’ve had the opportunity to work in several different positions with ICIEC, gaining experience across various functions, including conducting country risk assessments as part of the Risk Management department at the time. Currently, I head the Corporation’s Underwriting department, a team of 15 people in total, and I also work very closely with the departments of Business Development, Risk Management, Reinsurance, and Legal. The Underwriting department is divided into two teams: one team deals with underwriting activities for commercial risk transactions, and the other deals with underwriting for sovereign risk, sub-sovereign risk, and state-owned enterprise risk.
Q: As the Head of Underwriting, can you briefly describe underwriting and its role in ICIEC’s broader mandate?
MK: Underwriting is a core function of any insurance institution. The role of the Underwriting department at ICIEC is to receive applications submitted by potential clients and review their project and transaction documentation to assess the risk associated with the transaction. The risk assessment outcome is firstly to evaluate if ICIEC should cover the risk and issue a policy to the client. The second outcome is deciding which of ICIEC’s policies or products would be most suitable for the client and transaction and which risks or perils should be covered under the policy. We then decide the tenor, how long we should cover the risk, and under what terms and conditions we should cover, including the pricing. In summary, our department determines what type of risks we should take, the magnitude of the risks ICIEC can underwrite, for how long, and at what price.
Underwriting is essential more broadly within ICIEC’s mandate; underwriting is crucial as it supports our clients by assuming some of the transaction risks, especially when conducting cross-border business. When businesses engage in activities in new countries, they don’t know the culture, rules, laws, and systems work. They sometimes have insecurities about their ability to succeed in that country. In these situations, businesses typically undertake feasibility studies to assess the project’s profitability and how they will help the host country through job creation, facilitate the transfer of technology and many other benefits. However, what these businesses cannot manage is the political risk. This is where ICIEC’s underwriters come in with our knowledge of and relationships with, Member Countries. Throughout the whole transaction, we develop strong relationships with all the parties involved, including project staff on the ground and key government officials. This puts us in a privileged position to help avoid any potential problems, in addition to the insurance we provide. For example, we actively engage with the involved parties and resolve the matter when something goes wrong. In some cases, we can even arrange meetings between our CEO and the respective minister of finance, for example, to resolve any issues or disputes.
Q: What is ICIEC’s risk appetite like in the current market?
MK: Risk appetite is not something static but is rather dynamic. It is affected by the economic and political environment at the global, country and sector levels. Last year, our risk appetite was revisited to support most impacted member countries due to the pandemic. Now, as the pandemic is slowly clearing up and we see the mass roll-out of vaccines, our risk appetite is returning to the normal baseline again. In general, I can say that our risk appetite is determined through a defined written process. Thus our risk management department determines our level of risk appetite scientifically, analyzing available information at different levels.
Q: What are some of the trends in structuring transactions you have observed recently? Are there any new players, or is there any shift in the share of risk being taken on by other players, e.g. ECAs, private financial institutions etc.?
MK: The COVID-19 pandemic certainly has had a visible impact on the different players in the market. The risk appetites of private financial institutions have decreased significantly. As a result, ECAs and multilateral development finance institutions, including ICIEC, have done a great deal of work filling the gaps left by the private sector players taking more of the share of financing. Member Countries’ governments also played a crucial role by providing stimulus measures to the economy, specifically towards the trade and investment sectors, which also helped mitigate some of the risks caused by the pandemic. Without government interventions, the impact of the pandemic would have been much worse on the economy.
Furthermore, COVID-19 had far-reaching implications for the trade and investment industries globally. We know, for instance, that trade declined in 2020 by close to 10%, whereas some studies indicate that FDI went down by about 40%. These declines were much higher than those observed during the global financial crisis in 2008-09. The upshot of the pandemic and the panic it created scared away a lot of the private sector capital used to support development projects, especially those in countries already perceived to be high risk even before the pandemic. This led multilateral development institutions such as ICIEC and other Islamic Development Bank entities to take center stage and modestly try to fill the gaps left by the private sector capital flight. The trend emerging from this process has been the numerous initiatives that MDBs and ECAs have implemented to provide support to projects that traditionally would have been able to access private finance before the pandemic.
Q: What are some sectors or regions you see the potential for growing ICIEC’s support?
MK: The majority of ICIEC’s Member Countries are developing or emerging economies, which means there is a high potential for growth in these countries. Thus, the need for support from institutions like ICIEC is quite significant. Recently we have seen increased demand for Political Risk Insurance (PRI) in several regions, such as with our three Central Asian Member Countries. We have also seen increased demand in Sub-Saharan Africa, specifically in Cote d’Ivoire, Senegal and Nigeria. In the MENA region, with the political situation getting better in Libya, we expect demand to pick up very quickly, resulting from the need for reconstruction in the country. Indeed, we are ready to play our part in supporting that reconstruction process in the future. We also see a lot of demand in South Asia. In Bangladesh, for example, the economy has been growing very fast, specifically in the banking sector and the textile sector. We also see some increased demand in Indonesia as well. There is a lot of potential for ICIEC services right now.
The global integration of economies is fueling this demand. Many Member Countries are now more in touch with the rest of the world from a business perspective. For example, many Member Countries are trading capital goods with non-Member Countries. We often see this quite often, whether it is exports from these Member Countries or imports of strategic commodities and capital goods.
We see an increase in demand in the health sector, of course stemming from the pandemic. We also see growth in digital technologies because of the new trends emerging as the result of lockdowns. For example, new technologies to adapt operations for people working from home. Another sector in which we see growth picking up is renewable energy. The push for this happening globally, to mitigate against climate change, but the real action is trickling down to Member Countries through climate-related transactions. These are the main sectors in which we see a lot of growth and potential happening.
Q: ICIEC is an active member of the Berne Union; what do you see as ICIEC’s main contributions to the Union, and what are some of the benefits ICIEC gets from being a member?
MK: The Berne Union is an important association for ICIEC. It compromises Investment and Export Credit insurers worldwide from both the private and public sectors (national ECAs and specialized multilateral insurers, like ICIEC). The Union organizes annual meetings which serve as learning and networking opportunities for ICIEC staff. Being a member of the Union affords ICIEC numerous opportunities for actual collaborations. For example, we work with non-Member Country ECAs in Russia, China, the US, Netherlands, France, Belgium, and ECAs in our Member Countries through the Berne Union. In terms of what we contribute to the Union, we partake actively in all the meetings, send staff in for training, and share industry data and information. Over the last two years, we have been a member of the Management Committee, which means we are part of the decision-making process of the leadership of the Union itself and are a very active participant. Previously, ICIEC held the Vice-Chair position for the short-term committee, the biggest committee in the Union. We also actively participate in data collection and surveys used for publications. Lastly, we provide ideas and topics for discussion and use the Union as a platform for us to showcase what we are doing. In these areas, we see opportunities for collaboration among members. So, the Union for us is a forum that we believe is very helpful for us and at the same time, ICIEC plays a crucial role in making it a lively and valuable forum for everyone.
Q: What are some of the short- and long-term goals for ICIEC’s underwriting?
MK: To summarize, we would like to improve our overall efficiency and cost-effectiveness. The most crucial function of an underwriting department is always the quality of the underwriting, the efficiency by which it is done, the cost-effectiveness, and the results achieved. We have sound quality underwriting and robust results. As such, our short- and long-term goals are to increase the efficiency to serve our clients. Currently, we are expecting to roll out a new digital system to do so. Here it is important to note that our department has two sets of clients – internal and external. The internal clients are our colleagues in the business development unit prospecting for business opportunities that they bring to us to process. However, there are some aspects where we are inefficient in developing the deal. Efficiency and timeliness are essential. Additionally, as a development institution, we also have to be very selective in the projects we choose. We have to make sure that the projects we choose have a clear and measurable development impact. Hence, our long-term goal is to enhance the collaboration agreements with our Member Countries, peer institutions, private sector insurance providers, companies, ECAs and all the other stakeholders in this industry.
