An interview with ICIEC’s Head of Reinsurance, Rahmatnor bin Mohamed
ICIEC was established in 1994 under the Islamic Development Bank Group to promote international trade and facilitate foreign direct investment in OIC countries through the provision of Shari’ah-compliant trade credit and investment insurance. For over 27 years, ICIEC has built its trusted reputation as a leading multilateral insurer, catalyzing trade and investments in its Member Countries. ICIEC aims to bridge market gaps and step in where the private market capacity and risk appetite has limitations. In addition to serving corporates and banks across ICIEC’s Member Countries, the Corporation also works with national, regional, and multilateral Credit and Political Risk insurers to create additional insurance capacity for mega and higher-risk projects through active use of reinsurance.
Reinsurance has become one of ICIEC’s staple products. Through its reinsurance solutions, the Corporation offers risk-sharing support to Member Country ECAs and enhances their capacity to catalyze development. To provide deeper insight into the Corporation’s reinsurance activities, ICIEC’s Head of Reinsurance, Mr Rahmatnor bin Mohamed, responded to some questions regarding the use and provision of reinsurance and the future of the reinsurance market.
Since taking on the role in 2008, Mr Rahmatnor bin Mohamad has led ICIEC’s reinsurance team and is responsible for overseeing all reinsurance activities.
What is reinsurance, and why is it used?
Rahmatnor: Essentially, reinsurance is insurance for direct insurers. It is an enabling partnership with the Reinsurers allowing Insurers to share risk and increase capacity. Reinsurance is a tool used by insurance companies providing them with financial flexibility. Reinsurance, therefore, can be seen as « shadow capital », extending an insurer’s risk appetite and capacity.
What is the importance of reinsurance for ICIEC, and how do ICIEC’s clients and partners benefit from it?
Rahmatnor: ICIEC is in the business of providing Trade Credit and Political Risk Insurance (TC&PRI). For businesses conducting trade and making investments in an uncertain economic and political environment can be challenging. To manage these risks, companies around the world rely on TC&PRI. Credit Insurance provides coverage for a range of commercial and political risks that might lead to non-payment risk. In contrast, Political Risk Insurance covers political violence, Breach of Contract, War, expropriation, and currency inconvertibility, as well as Non-honoring of Sovereign Financial Obligation. It helps mitigate the financial blow from the loss or damage of commercial assets, income or property due to political events. While commercial and political risks are often difficult to predict, TC&PRI can provide peace of mind for policyholders.
Due to the current global political and economic environment and the higher-risk nature of some of ICIEC’s Member Countries, insurers providing cover for commercial and political risks may be hesitant to cover risks in certain instances.
Multilateral Insurance Institutions like ICIEC can be better suited than private insurers or ECAs to issue an insurance policy covering high-risk investment and trade destinations due to our mandate, political leverage, financial capacity, and ownership structure. As such, ICIEC and other multilateral insurance providers can expand the total market capacity for these destinations by seeking outward reinsurance or providing inward reinsurance to private insurers and ECAs, helping to boost investment and trade in high-risk states and regions. Inward reinsurance for ICIEC refers to when an insurance provider or national ECA seek ICIEC’s support to reinsure a risk they have covered, thus sharing the risk between the insurer and ICIEC as a Reinsurer. Usually, ICIEC shares the risk on inward reinsurance arrangements based on a predetermined agreement in these cases. Outward reinsurance is when the Corporation seeks to share risk or expand its insuring capacity for a particular project or portfolio. When ICIEC pursues outward reinsurance, it then looks for partners from the larger reinsurance market, such as the Lloyd’s of London. With outward reinsurance, we can enhance our capacity to take on additional risk and increase our capacity to insuring significant investments volumes and trade transactions.
When does ICIEC seek outward reinsurance?
Rahmatnor: ICIEC reinsures all its transactions via a treaty program and facultative arrangement or both. ICIEC seeks outward facultative reinsurance for megaprojects and trade transactions considered too large for ICIEC to undertake alone. This determination is based on actuarial assessment and risk profiling. ICIEC seeks to support these large-scale projects expressly if they deliver significant development impact, enabling the Corporation to fulfil its mandate. ICIEC’s main partners for outward reinsurance are from the European continent and Bermuda. However, ICIEC constantly explores the availability of rated security in non-traditional markets. These non-traditional reinsurance markets provide needed capacity for specific risks that otherwise cannot be insured on the continent and UK. ICIEC enjoys strong partnerships with other multilaterals who share similar mandates with ICIEC and, as such, often share risks. Our Strategy is to pursue all avenues that may secure additional risk capacity for ICIEC and make sure we have several options.
How is ICIEC benefiting from reinsurance treaties?
Rahmatnor: ICIEC has several treaty programmes covering all lines of business underwritten by the Corporation. Highly rated Reinsurance companies back these treaty programmes. Products included in the treaty programmes are – amongst others – STP, BMP, and FIIP. These treaty reinsurance programmes have provided ICIEC with automatic facilities and additional capacity, reducing the rising transaction costs of setting up facultative reinsurance.
In what cases does ICIEC use facultative reinsurance?
Rahmatnor: While ICIEC typically works with reinsurers on a treaty basis, we remain open to the reinsurance market on a facultative basis. The facultative market helps us stay in touch with the market to understand the current status of risk appetite and pricing. Facultative reinsurance is often used for transactions that do not meet treaty terms and conditions and typically reserved for large-scale transactions with profound development impact. Thanks to ICIEC’s outward facultative partnerships, investors, traders, and banks receive much-needed insurance cover, enabling the execution of trade transaction and inflow of investment to our member countries.
Can you speak more on ICIEC’s role in providing inward reinsurance?
Rahmatnor: Certainly. ICIEC serves as an essential reinsurance partner for the national ECAs of Member Countries in terms of inward reinsurance. These ECAs are often relatively small and are in need not only of financial capacity but also require technical support. These ECAs reach out to ICIEC for reinsurance to support their countries’ export activities and project financing. For these ECAs, ICIEC provides inward reinsurance agreements through facultative and treaty arrangements covering development impact-oriented projects that might not materialize otherwise.
2020 has been a challenging year for everyone. Besides the widespread hardships COVID-19 created in various capacities, how did the pandemic impact the reinsurance market and ICIEC?
Rahmatnor: 2020 was a challenging year in general for the reinsurance market, with significant concerns and outcomes of non-payment. With such uncertainty in the market for political and commercial risk, underwriters mainly focused on their existing portfolios. They did not have an appetite for underwriting new business. In 2020, ICIEC insured USD 9.9 billion worth of business and secured a reinsurance capacity totalling USD 6.081 billion through our treaties, the facultative reinsurance market and other insurance partners. In terms of inward reinsurance, ICIEC participated as a reinsurer for the Inward Quota Share Treaty programs with Turk Eximbank (Turkey), CAGEX (Algeria), COTUNACE (Tunisia), NAIFE (Sudan), Indonesia Eximbank (Indonesia), EGE (Egypt), JLGC (Jordan) and ASEI (Indonesia). In December 2020, ICIEC notably renewed its outward Quota Share Treaties based on expiring terms and conditions despite the world’s challenging pandemic period. ICIEC is particularly proud of this achievement, as we believe it shows how valued ICIEC is as an insurance partner.
Putting 2020 into the rear-view mirror, what is your outlook on the market for reinsurance entering 2021?
Rahmatnor: In 2021, the political risk landscape is particularly tumultuous. The COVID-19 pandemic continues to wreak havoc across the globe, killing and infecting millions, stressing healthcare systems, straining supply chains, troubling economies, and exposing deficiencies in all levels of government worldwide. Various geopolitical conflicts are causing significant risks, while the deterioration of US-Sino relations is providing concerning risk implications for global security and trade. Meanwhile, domestic forms of political strife are exceptionally high, with large protests and unrest occurring in various states worldwide. Despite the conditions in 2021 being somewhat unpredictable, we expect more reinsurance capacity to be released as vaccines reach those in need and governments slowly open their countries from extended lockdowns. These actions will help boost business going forward and encourage investment and trade in the post-COVID-19 world.
Lastly, what should ICIEC’s stakeholders expect from the Corporation’s reinsurance team in the future?
Rahmatnor: As we continue to deal with the ramifications of the pandemic, the reinsurance team at ICIEC is working diligently to strengthen our existing reinsurance partnerships and seek new opportunities to enhance ICIEC’s capacity in support of our Member Countries achieving their development vision and programmes. Despite the current difficulties, we are excited and prepared to help enable an insurance market that can assume more risk, further enhance trade and investment, and support life-altering projects for those most in need. We will continue strengthening ICIEC’s reinsurance capacity as we come out of this challenging period, and I am excited for the potential I see in the world post-COVID. Thank you.
