If we agree with the mood music at the Annual General Meeting of the Berne Union (BU) in October in Hamburg, the leading global association for the export credit and investment insurance industry of which ICIEC is a member, then our industry was poised for a new growth phase in 2024 with opportunities in a changing global trade landscape with the beguiling lure of trade digitalisation, the adoption of electronic trade documentation and its new-found legality under UK governing law, and generative AI applications.

BU members provide over USD3 trillion in new commitments annually in support of trade – more than 10% of the total value of global exports. The data indeed point to a modest positive trajectory in 2024 despite the increased risks. The credit insurance dichotomy is that economic and geopolitical flashpoints lead to heightened risks – both perceived and real. This in turn increases demand for risk mitigation tools such as export credit and political risk insurance, surety, and guarantees.

“The year 2023 marked continued transformation in the trade finance industry. Historic levels of underwriting have led to a colossal USD3.12 trillion of support for trade over the year. As trade patterns shifted and new relationships forged companies sought protection from Berne Union members to expand their businesses in new avenues,” stressed Maëlia Dufour, the erstwhile President of the BU whose 2-year term expired at the end of October 2024, in the Union’s 2023 Year Annual Report. This growth saw a surge in demand for Medium-Term (MLT) and Other Cross-Border (OCB) solutions in a strategic shift towards longer-term solutions.

“We have uncovered a growing emphasis on larger and more complex transactions, extended tenors, and a heightened need to mitigate risks associated with intricate global supply chains amid high interest rates. Companies are increasingly seeking the stability and security our membership offers,” she added. The emphasis for 2024 is a much greater meaningful collaboration between stakeholders around public and private risk-sharing, synergy between trade and development, and the potential for innovation amid new products and emerging approaches to export support.

Not surprisingly, BU members reported USD2.46 trillion in new commitments in H1 2024 which shows a consolidation of a new growth phase for export credit especially medium-and-long-term (MLT) business lines as well as continued diversification across a growing array of trade support products.

MLT export credit, according to the Union, saw another historically strong period, climbing 22% to USD73 bn of new business, driven by increased ECA support and expansion of underwriting from private insurers with notable growth in Europe, the Middle East and South Asia. Ocean-going vessels and mega infrastructure projects drove MLT growth, but the industry still sees the greatest opportunities in renewable energy and green transition. Members also reported new and updated products primarily focused on green support and expanded domestic support, untied and working capital products which aim to build and enable future trade ecosystems.

Geopolitical risk and economic slowdown are the biggest concerns for members, as claims remain elevated at USD5 bn – but claims ratios remain relatively benign overall. The first half of 2024 also saw a flurry of PRI claims to Russia triggered by a range of events including: expropriation, political violence and transfer. The BU is also collaborating with Finance in Common which aims to explore and promote opportunities for closer collaboration between export credit and development finance.

Berne Union Business Lines, Claims and Recoveries Data H1 2024

Policymakers can influence growth in various ways, from governance reforms to strengthen institutions, to financial and fiscal reforms, and investment incentives to unlock capital flows, for investment especially in infrastructure. However, as the IMF researchers suggests, complementing these reforms with measures to narrow gender gaps would greatly amplify these returns.

The challenge is how to enhance current policy trends at the government, institutional, and corporate levels to close gender gaps. “Our analysis of three decades of data,” says the IMF, “shows that countries have made progress increasing women’s participation, but economies of all income levels experienced several setbacks—a result of shocks, crises and policy reversals.

Countries must step up efforts to break down barriers to women’s participation in the labor market and workplace. Unfair laws, unequal access to services, discriminatory attitudes, and other obstacles prevent women from realizing their full economic potential.

The result is a shocking waste of talent, leading to losses in potential growth.”

There are other compelling reasons for pushing gender balance parity in the economy and the workplace. For instance, Global trade is poised to rebound in 2024 according to UNCTAD’s latest trade update, reversing the downward trend in 2023 when overall, the value of global trade fell by 3% to USD 31 trillion. The WTO’s July 2024 Goods Trade Barometer similarly reports signs of recovery in trade flows. After remaining flat since Q4 2022, the volume of world merchandise trade began improving in Q4 2023 and gained momentum in Q1 2024, rising 1.0% compared to the previous quarter and 1.4% year-on-year.

International gatekeeper organizations, including the Bretton Woods institutions and peer MDBs, must also reflect on their approach to gender responsiveness and balance. At the 49th Meeting of the International Monetary and Financial Committee during the 2024 Spring Meetings of the World Bank/IMF in Washington, DC, the clarion call from LMICs to the World Bank/IMF Executive Boards to “make meaningful strides” towards greater Diversity and Inclusion, particularly for gender parity in the Executive Board of the IMF, as well as enhanced gender balance on all grade levels in the offices of Executive Directors.

“We recognize the progress made on Diversity and Inclusion and accelerating gender equality and inclusion as key drivers of effective and impactful development,” reminded Lesetja Kganyago, Governor of the South African Reserve Bank (SARB). “But we call for continued commitment to make meaningful strides in tackling the ongoing challenges of greater recruitment and promotion of staff from underrepresented regions, as well as more female appointments at all levels, to ensure a level playing field and equitable treatment for staff at all grade levels across the membership.” In this respect, the World Bank Group’s new Gender Strategy assumes even greater importance in strengthening work to elevate human capital, expand economic opportunities, and engage women as leaders.

Gender outcomes were a prominent feature at the 13th Ministerial Conference (MC13) of the WTO in Abu Dhabi in March 2024, particularly concerning gender inclusivity in trade, trade finance and insurance. To mark International Women’s Day on 8 March 2024, the WTO through its Informal Working Group on Trade and Gender launched the International Prize for Gender Equality in Trade, which recognizes the most impactful gender-responsive trade policies implemented by WTO members and observers.

Looking ahead, the WTO and the WTO Gender Research Hub will organize the second edition of the World Trade Congress on Gender in 2025, focusing on innovation. The Secretariat will also release new policy tools during the Aid for Trade Global Review 2024, including incorporation of gender indicators in Aid for Trade programming and a new database mapping gender-responsive trade policies.

The Current State of Gender Balance

Research and data on gender balance and the socio-economy has flourished enormously over the last decade . The Sustainable Development Goals (SDG) Report 2024 reminds us through SDG 5 on Gender Equality, that “the world continues to lag in its pursuit of gender equality by 2030. Parity in women’s participation in public life remains elusive, and in management positions, at current rates, parity will require another 176 years. Enhancing women’s roles in leadership and decision-making and adequately scaling up investments in gender equality on national, regional, and global scales are top priorities.”

Earlier this year, Moody’s Analytics published a research study that highlights a significant shift in the global labor market. The study found that gender employment gaps are narrowing across the world due to increased female participation rates, adding USD 1.5 trillion to global income since 2019.

The female participation rate rose above its pre-pandemic level already in 2021 in the European Union, and in 2022 in the U.S. Progress in the EU has been especially remarkable, with the female labour force participation rate rising almost three percentage points in just over three years.

Moody’s Analytics identified three key forces behind the narrowing in gender gaps:

1. Tight labour markets – unemployment rates are at or near record lows in many countries. To attract talent, employers may be offering higher wages or incentives, drawing participants into the labor market.
2. Cost of living increases – high inflation and interest rates have squeezed household budgets, promoting new entrants into workforce to make ends meet.
3. More flexible working conditions – the post-pandemic shift towards remote working and more flexible work arrangements has increased labor participation.

Narrowing Gender Gaps Have Added $1.5 Trillion to Global Income
Contribution to global income, $ bil international (purchasing power parity)

Source: Moody’s Analytics

A report by Moody’s Investors Service in March A report by Moody’s Investors Service in March 2024 found that higher-rated companies tend to have a higher proportion of women on their boards. Women account for an average of 29% of the board seats of investment-grade companies (those rated Baa and above), and an average of 24% of the board seats of speculative-grade companies (those rated Ba and below). Companies based in advanced economies show a correlation between board gender diversity and credit ratings, whereas those in emerging markets do not. “The presence of women on boards – and the potential diversity of opinion they bring – supports good corporate governance, which is positive for credit quality,” emphasized Moody’s.

Another report by Sustainable Fitch indicates that companies with high gender diversity across all staff levels tend to have better overall ratings, suggesting a link between gender diversity and comprehensive ESG performance. Banks and financial institutions lead in gender diversity, while sectors such as energy, automotive, and transportation lag behind. “Board-level gender diversity,” says the report, “has risen in recent years, facilitated by supportive regulations. However, more effort is required to promote greater representation across countries and sectors. Our data indicate that European countries continue to lead in terms of the number of women on boards, with the Middle East and Latin America behind. Female board representation is also higher in insurance, healthcare, and education.”

McKinsey & Company’s ‘Women in the Workplace 2024’ report echoes the consensus that there have been important gains for women at every level of the corporate pipeline (in this case in the US for instance), particularly in senior leadership. “Research shows that companies with more women in leadership benefit from greater innovation, healthier cultures, and stronger performance. And in addition to offering valuable skills and perspectives, women leaders inspire the next generation of women to make their mark.”

However, progress toward parity remains slow for women at the manager and director levels, creating a weak middle in the pipeline and impacting most women. “At the current rate of progress, it will take almost 50 years to reach parity for all women in corporate America—and that assumes companies can translate their somewhat precarious momentum into more substantial and sustainable gains,” concludes the report.

Missed Opportunities

Two other reports provide sobering insights into the current and near-to-medium-term state and prospects for women in finance, the workplace, and trade. The 11th edition of the Gender Balance Index (GBI) published by OMFIF, the independent forum for central banking, economic policy, and public investment, paints a picture of missed opportunities. The index tracks the presence of men and women in senior positions in central banks, commercial banks, pension funds and sovereign funds.

“Even though there are more women in senior positions across central banks and top financial institutions in 2024, only 14% of the 63 institutions with new governors or chief executive officers in the past year appointed women. At this rate of change, the prospect of gender parity in leadership remains decades away,” states OMFIF.

However, in this landscape of gender gaps and parities, the data can be misleading. While absolute numbers may show some improvements, they often mask the fact that the base for the metrics is low and that barriers to entry remain high. These barriers are dominated by policymakers and national leaders, who are still predominantly men. According to OMFIF, in 2023, the share of new women CEOs in commercial banks and SWFs was zero, and in central banks and pension funds it was only 18% and 22% respectively.

Take, for instance, the South African Reserve Bank (SARB), the central bank. SARB’s gender balance record is mixed. Although SARB’s ranking in the GBI improved from 100 in 2022 to 63 in 2023, and its GBI score rose by 19 points year-on-year to 54. the percentage of senior female staff at the central bank was still only 35%. In March 2024, President Cyril Ramaphosa reappointed Ms. Nomfundo Tshazibana as Deputy Governor of SARB for a period of five years effective from 1 August 2024. He also appointed the prominent economist Dr. Mampho Modise as a new Deputy Governor of SARB for a period of five years effective from 1 April 2024. The gender bias has now shifted in favour of women in the Deputy Governor cohort, which now includes three female appointments.

Considerable progress across institutions in the long term
Average GBI scores

Source: OMFIF Gender Balance Index 2018-24Note: Commercial banks were included in the index from 2021 onwards. The sample of pension funds and sovereign funds included in the index changed in 2022 to cover 50 of the largest institutions by assets under management across regions.

The proportion of female leaders in the 335 institutions in the GBI increased to 16% – its highest ever share. Most of the progress was seen in central banks, where the number of female governors increased to 29 (16%) from 23 (15%) in 2023. Pension funds hold the highest share of women in the top rank, –rising to 28% from 24% in 2023. However, commercial banks and insurance companies have regressed: the share of female CEOs fell to 12% this year from 16% in 2023. Sovereign Wealth Funds (SWFs) have an even lower representation, with 10% led by women.

However, in this landscape of gender gaps and parities, the data can be misleading. While absolute numbers may show some improvements, they often mask the fact that the base for the metrics is low and that barriers to entry remain high. These barriers are dominated by policymakers and national leaders, who are still predominantly men. According to OMFIF, in 2023, the share of new women CEOs in commercial banks and SWFs was zero, and in central banks and pension funds it was only 18% and 22% respectively.

Take, for instance, the South African Reserve Bank (SARB), the central bank. SARB’s gender balance record is mixed. Although SARB’s ranking in the GBI improved from 100 in 2022 to 63 in 2023, and its GBI score rose by 19 points year-on-year to 54. the percentage of senior female staff at the central bank was still only 35%. In March 2024, President Cyril Ramaphosa reappointed Ms. Nomfundo Tshazibana as Deputy Governor of SARB for a period of five years effective from 1 August 2024. He also appointed the prominent economist Dr. Mampho Modise as a new Deputy Governor of SARB for a period of five years effective from 1 April 2024. The gender bias has now shifted in favour of women in the Deputy Governor cohort, which now includes three female appointments.

Women in Technology

Senior technology roles in financial institutions present a promising avenue for women in leadership, with encouraging signs for women in technology. Of the seven sovereign fund Chief Technology Officers (CTOs) included in the OMFIF’s GBI index, four are women. Two out of five African sovereign funds have women in leading technology roles, including Makano Mosidi CTO of South Africa’s Public Investment Corporation (PIC) and Sheila Malebogo Sealetsa, adviser on banking and currency digitisation of Botswana’s Pula Fund. In fact, the Central Bank of Seychelles and Bank of Namibia were the two highest ranked African countries in the GBI, with 54% senior staff comprised of women professionals. In contrast, the PIC has 17 female executives but no women on its board. Meanwhile, Absa and Standard Bank had 43 and 29 female board members, respectively, and 23 female executives each.

Share of women in tech is on par with industry trends
Share of women in senior positions, %

Source: OMFIF analysis
Note: Executive committee data unavallable for central banks.

The biggest challenge for women in the workplace may be reflected in the World Bank Group’s ‘Women, Business and the Law’ Report launched in March 2024. The report confirms that “the global gender gap for women in the workplace is far wider than previously thought. When legal differences involving violence and childcare are included, women on average enjoy just 64% of the legal protections and rights that men do—far fewer than the previous estimate of 77%. No country provides equal opportunity for women, -not even the wealthiest economies.”

The Report reveals a disconcerting implementation gap. Although laws suggest women enjoy roughly two-thirds of the rights men do, countries have established less than 40% of the systems needed for full implementation. For example, 98 economies enacted legislation mandating equal pay for women for work of equal value. Yet only 35 economies – fewer than one out of every five – have adopted pay-transparency measures or enforcement mechanisms to address the pay gap. The gender and implementation gaps highlight how much hard work lies ahead towards achieving parity.

New Trade and Gender Initiatives for MSMEs

In the field of trade, members of the World Trade Organisation (WTO) are increasingly discussing how to make trade more inclusive by fostering the greater participation of women and Micro-and-Small-and-Medium-Sized Enterprises (MSMEs) in trade. The recognition of the specific constraints of MSMEs and businesses owned by women in integrating global trade and leveraging trade for economic empowerment has resulted in the establishment of the WTO Informal Working Groups on MSMEs and on Trade and Gender.

According to the WTO, the Informal Working Group on MSMEs provides a forum to exchange information and experiences on ways in which WTO members could better support the participation of MSMEs in global trade. The Informal Working Group on Trade and Gender aims to enhance women’s participation in international trade by sharing best practices and exploring how women can benefit from the Aid for Trade initiative, among others. Discussions on inclusive trade have also gained significant importance in other WTO committees and working groups.

In this respect, the International Finance Corporation (IFC), the private sector funding arm of the World Bank Group, recently launched a new MSME Finance Platform initiative to aid financial service providers in delivering funds to small businesses in emerging markets, with a particular focus on those owned by women and those in the agriculture and climate sectors.

The Platform will include a financing package of up to USD4 billion from IFC’s own account to banks, non-bank financial institutions, microfinance institutions, and innovative digital lenders that focus on MSMEs. It will also utilize various forms of credit enhancement to mobilize private capital, including an innovative Catalytic First Loss Guarantee, which together aim to crowd in an additional USD4 billion in financing from eligible financial service providers to expand lending to these businesses.

“Micro, small, and medium enterprises.” explained Makhtar Diop, Managing Director of IFC, “form the backbone of most developing economies, yet they face significant financial barriers that hinder their potential. Our new financing platform addresses these challenges head-on, empowering financial service providers to extend critical support to these businesses, particularly those that are women-led or environmentally focused.” MSMEs, according to the IFC, make up over 90% of all firms and account, on average, for 60-70% of total employment and 50% of GDP worldwide. Still, according to the SME Finance Forum, there is currently a roughly USD5.7 trillion financing gap for MSMEs.

In emerging markets, MSMEs and the informal sector are essential to economic growth, job creation, and poverty alleviation. Recent crises have weakened financial service providers financially, constraining their ability to meet increasingly stringent lending requirements. As a result, businesses are seeing a credit contraction in emerging markets and developing economies due to tighter credit conditions, rising interest rates, and a limited appetite for risk.

The IFC will leverage its risk capital to extend first loss protection to eligible financial service providers, which often have ample local currency liquidity but have limited exposure to MSMEs due to the segment’s perceived high risk. Through this mobilization approach, the MSME Platform aims to create a financing solution through capital optimization structures and potentially redirect significant amounts of local currency financing to businesses.

The Platform will be supported by the International Development Association’s Private Sector Window (IDA PSW) to help de-risk the credit and foreign currency exposures in projects in low-income countries. Up to USD100 million will come from the IDA PSW Blended Finance Facility (BFF). In addition, resources from the Global SME Finance Facility (GSMEF) and the Women Entrepreneurs Opportunity Facility (WEOF) will be allocated to support and incentivize lending to businesses in the agriculture sector and women-owned MSMEs.

Looking ahead, as IMF Managing Director, Kristalina Georgieva and her co-authors Nadia Calvino and Odile Renaud-Basso stressed in a recent article titled ‘The Economic Power of Gender Equality,’ “women’s talent is a driving force behind economic progress and an essential part of the solution to climate change. Women already lead some of the world’s most influential financial bodies and play a growing role in the political arena. Now women must lead the shift to a more inclusive and sustainable growth model. We have a unique opportunity to advance inclusion, to inspire similar commitments from others, and to shape the future for the better.”

Baku, the capital city of Azerbaijan, is the host city for COP29, leading up to the actual conference in November 2024. Baku is also the latest accession member state of ICIEC. The government of President Ilham Aliyev is prioritizing key economic development in areas such as the promotion of regional connectivity (rail, gas pipelines, and electricity transmission), decarbonization especially through solar and wind renewable energy, the ‘Middle Corridor’ project which is aimed at supporting SMEs through collaboration with local domestic banks, and the promotion of Islamic finance and utilizing ICIEC’s credit and investment de-risking insurance. As COP29 looms, the central agenda will be climate finance, which is crucial for implementing the commitments made at previous conferences. Azerbaijan’s COP 29 Presidency is also stressing the importance of reviewing past promises to ensure they are being acted upon. Arysbek Zhumabek, Country Manager, Asia Region Division, Business Development Department, ICIEC profiles Azerbaijan’s clean energy transition status and its Net Zero pathway, and ICIEC’s recent and future involvement in the country’s SDG and decarbonization journey, and the potential for collaboration especially in the pioneering area of the green economy relating to food security, energy transition, climate action and regional connectivity.

3. Trade Digitization – Embracing the Technological Wave

The digitalization of trade finance is transforming how business is conducted. ICIEC as with other credit and foreign investment insurers needs to embrace these advancements to stay competitive:

• Trade Finance Platforms: On-line platforms like Marco Polo and we.trade are facilitating faster and more secure trade transactions. ICIEC shall enhance its online platform to offer real-time risk assessment and automated policy issuance.
• Big Data and Analytics:Leveraging big data and advanced analytics allows insurers, like ICIEC, to gain deeper insights into risk profiles, develop dynamic pricing models, and identify emerging trends.

4.The New ISO 20022 Standard – Streamlining Communication

The ISO 20022 standard enables more efficient and reliable exchange of information between parties involved in trade transactions, reducing processing times and errors associated with manual data entry and reconciliation.

Moreover, the standardization of messaging formats facilitates straightthrough processing (STP) of transactions, leading to cost savings and improved customer experience.

By adopting the noted standard, ICIEC can enhance their partnership with other stakeholders in the trade ecosystem, such as banks, corporates, and regulatory authorities which requires:

• System Upgrades: ICIEC needs to upgrade its system to be compatible with the new standard for seamless data exchange with banks, customs authorities, and other stakeholders.
• Training and Awareness: Training staff on the new standard and its implications for workflow adjustments is crucial for a smooth transition.

ICIEC Strategies for a Dynamic Future

ICIEC, as part of the IsDB Group, is well-positioned to adapt to the changing environment. Its focus on supporting trade within the member states of the OIC aligns with the increasing importance of South-South trade. By incorporating the strategies outlined above, ICIEC can continue to play a vital role in promoting economic development for its member countries by facilitating trade flows and supporting foreign direct investments.

ICIEC can navigate the evolving landscape by adopting the following strategies:

• Strategic Partnerships: Collaborating with trade finance platforms, banks, and other stakeholders can facilitate knowledge sharing and foster the development of innovative solutions.
• Flexibility and Agility: The ability to adapt quickly to changing circumstances is critical. We need to develop agile business models that can accommodate new technologies, regulations, and industry trends.
• Data-Driven Decision Making: Leveraging big data and analytics empowers us to make informed decisions about risk assessment, product development, and resource allocation.
• Continuous Learning: Establishing a culture of continuous learning allows ICIEC to stay updated on the latest developments in the industry. This can involve attending industry conferences, collaborating with academic institutions, and subscribing to relevant publications.

As regards IFRS 17, which was a replacement to IFRS 4, it is an international financial reporting standard issued by IASB in May 2017 with an effective implementation date January 1, 2023. Its primary objective is to enhance transparency in the accounting for insurance contracts and improve comparability across different jurisdictions.

The new standard sets out principles for the recognition, measurement, presentation and disclosure of insurance contracts. It provides a clear definition of liabilities for future (i.e. remaining) coverage and liabilities for incurred claims. Under the general model (also called General Measurement Model-GMM or Building Block Approach-BBA), the insurance entity should consider three main elements (blocks):

1. Estimates of the Fulfilment Cash Flows (FCF), discounted at a rate that prices in both time value of money and financial risks.
2. The risk adjustment to compensate for bearing the uncertainty due to non-financial risks.
3. The Contractual Service Margin (CSM), which is the unearned profit the insurer will be posting to the P&L over time as the insurance contract is serviced.

Better Financial Reporting but also …. More Challenges

The implementation of IFRS 9 comes with multiple challenges. Indeed, the insurance entity’s systems will need significant modifications and adjustments. For instance, the required ECL (Expected Credit Loss) model would require sophisticated procedures to make economic forecasts and assess EAD (Exposure at Default), PD (Probability of Default) and LGD (Loss Given Default) which requires human, technical, and financial resources. Additionally, integration of processes from various departments, mainly from investments and accounting, would most likely be required to ensure better data optimization and processing. All this will result in huge costs.

Similarly, IFRS 17 has also introduced significant operational complexity to the insurance world. It requires large volumes of spreadsheet calculations, huge data collection and preparation, substantial system integrations, and obviously very skilled people who would need to test, run, check, and validate sophisticated models. Significant resources have been spent on data, systems, actuarial models, accounting policy, or solution development to implement IFRS 17. All these resources come at a cost that will impact the performance of the insurance company.

Beyond these direct financial costs, which can be enormous, many insurers would still struggle for years to attain compliance rather than achieving true value creation to their shareholders. Some insurers opted to use solutions offered by external accounting service providers to separately run IFRS 17 models with less disruption to their existing finance, actuarial and accounting processes and systems. These toolboxes, usually available to run on the Cloud or on premises, would simply require data feed from the insurer. Among the problems that such solutions may cause is the one that would mainly mention data confidentiality and full dependency on external providers.

All the above challenges are visible and expected, and many insurers have already taken steps to handle them. There are, however, other consequences of the adoption of IFRS 9 and IFRS 17 that could lead to less apparent challenges. These ones, if not addressed properly, may cause serious issues to conventional and Takaful insurance operators. The next section briefly describes two of these “hidden” challenges triggered by the two new accounting standards.

New accounting standards and Strategic Asset Allocation considerations

By looking closely at the classification scheme proposed by IFRS 9, one would apprehend that the contractual cash-flow test and the business model assessment (required criteria for an amortized cost classification) are becoming key factors in deciding whether to invest in an instrument or not. This is obvious since failure in satisfying these two criteria will likely result in the financial instrument being classified in the residual group of Fair Value through Profit and Loss (FVTPL).

Following a classification of the financial instruments as per the IFRS 9 classification scheme, the Profit and Loss (P&L) as well as the Other Comprehensive Income (OCI) accounts of an insurance company can display large volatility, which may or may not be desirable. For instance, investments in mutual funds imply that the resulting revaluation gains or losses are to be posted to P&L. Such accounting treatment would not be desirable for insurers who prioritize the stability of their P&L accounts over time.

In such a context, fixed income securities passing the SPPI (Solely Payments of Principal and Interest) and the business model tests, and equity instruments elected to be accounted for at Fair Value through Other Comprehensive Income (FVOCI) would mostly find their way to the investment portfolios of insurers who are concerned about the P&L volatilities. On the contrary, for entities who are more concerned about the size of their equity on their balance sheet (i.e. those who seek stability in the OCI which is an equity reserving account) but less concerned about P&L volatility, then mutual funds, equity, and fixed income securities accounted for at FVTPL, would be more desirable.

As we can see, IFRS 9 may cause a kind of natural selection of asset classes that insurance companies need to account for. It is expected that IFRS 9 will trigger revisions and updates to investment strategies and Strategic Asset Allocation of insurers.

New Accounting Standards and ALM Considerations

IFRS 4 (the predecessor of IFRS 17) gave insurance companies, if they opt to, the possibility to value their insurance liabilities (contracts) at book value. Under IFRS 17, however, the valuation of the insurance contracts will take into consideration discounting factors and risk adjustments making it, to a much greater extent, based on market values.

Immediately, one could easily see that the new valuation of the insurance liabilities required under IFRS 17 introduces an element of “interest ratesensitivity” to the liability side of the balance sheet. It is then the role of the ALM to assess and mitigate this risk factor and take necessary actions.

One particular important element of IFRS 17 is that subsequent changes in the valuation of insurance liabilities due to market (discount) rates will normally flow into the P&L, unless the company opts to allocate the impact to the OCI instead of the P&L. Additionally, and as seen before, classification under IFRS 9 may also result in gains or losses attributed to P&L and/or OCI. Indeed, loans and receivables under IFRS 9 can be accounted for at amortized cost, FVPL, or FVOCI. Under any of the two latter cases, gains and losses are to be posted to either the P&L or the OCI accounts. Furthermore, and while equity investment can be accounted for at FVPL or FVOCI (election with no recycling), IFRS 9 stipulates that puttable instruments are to be accounted for at FVTPL.

Thus, when looking at these two standards together from an ALM perspective, it would be in the best interest of the insurance operator to simultaneously consider and align the accounting choices for the treatment of liabilities (changes due to interest rate posted to P&L or OCI) with those of the investments (assets) side. Treating insurance contracts at FVPL while accounting for assets at amortized cost for instance would appear less optimal and may result in higher P&L volatility in addition to a potential balance sheet mismatch.

What about ICIEC?

As ICIEC navigates the current dynamic economic landscape, and while encountering its inevitable challenges, the Corporation took necessary steps and measures to equip itself with strategies, policies, processes, and resources so as, to shape its trajectory towards excellence.

Indeed, ICIEC engaged in the preparation for IFRS 9 and IFRS 17 early enough to be ready for implementation and full compliance with both standards starting from January 2023. As such, internal taskforces were formed, external consultants (as needed) were hired, and timelines were defined to complete the preparation projects on time.

To optimize the ALM implications of the joint adoption of IFRS 9 and IFRS 17, the Corporation decided to enhance its organizational structure and governance framework so that the Finance Division, responsible for accounting and bookkeeping, can be in continuous communications with the Treasury & Investment Division, Risk Management Division, Underwriting Department and other relevant units within the Corporation.

Furthermore, a new Liquidity Policy, Investment Strategy, and an ALM framework have emerged for implementation in which IFRS 9 and IFRS 17 impacts were duly considered and assessed. Such a governance setup has ensured close coordination between business units and reinforces the strategy that ICIEC investment activities are creating value to its stakeholders.

A Sound Building Block for Future Expansion and Engagement

Given ICIEC’s uniqueness in being the only Shariah-compliant multilateral insurer in the world, and this year marking its Pearl Jubilee of 30 years of operations, underwriting and service to its 40 member states, it is only timely that the Corporation articulates this compelling backstory as the foundation for its next three decades while at the same time helping to promote the credit and investment insurance culture in its 49 member states. Mohamud Hussein Khalif, General Manager of Underwriting Operations, and Yasser Alaki, General Manager of Business Development at ICIEC, give a legacy insight into the world of risk mitigation and credit enhancement, of credit and investment insurance culture, of navigating emerging risks, and the huge advances made by ICIEC in three decades in a cohort of manifold metrics, with a special focus on future priorities, strategies, innovations, delivery objectives, and standout achievements, and what needs to be done by IsDB member states and industry bodies to enhance the awareness, uptake and culture of credit and investment insurance in their economies.

ICIEC has made significant advancements in the credit and investment insurance landscape over the past three decades. As the only Shariah-based multilateral insurer in the world, it has played a crucial role in promoting trade and investment among IsDB (Islamic Development Bank) member states. Some notable achievements of ICIEC include:

• Expansion of Coverage: ICIEC has expanded its coverage to various segments of credit and investment insurance, including short-term trade credit, and medium and long-term investment insurance. This expansion has provided comprehensive risk mitigation solutions to support economic growth and development.
• Business Development: ICIEC has focused on business development initiatives to enhance the awareness and uptake of credit and investment insurance in member states. It has actively engaged with IsDB member states and industry bodies to promote the benefits of insurance, develop customized solutions, and facilitate capacity building programs.

To further enhance the awareness, uptake, and culture of credit and investment insurance in member economies, ICIEC member states and industry bodies can:

• Foster Collaboration: by encouraging collaboration between ICIEC and member states’ financial institutions, insurance companies, and industry associations to jointly promote credit and investment insurance and exchange best practices.
• Create Awareness: by conducting awareness campaigns to educate businesses, investors, and financial institutions about the benefits of credit and investment insurance. This can include workshops, seminars, and publications highlighting successful case studies and the positive impact of insurance on economic growth.
• Engage Regulatory Bodies: Through streamlining regulations and creating a conducive regulatory environment that facilitates the use of credit and investment insurance. This can involve simplifying procedures, reducing barriers, and providing incentives for businesses to adopt insurance solutions.

The current state of the credit and investment insurance landscape especially Takaful-based solutions in ICIEC member states, especially in an era of poly-crises and growing uncertainties and risks is at best evolving. ICIEC is cooperating with the AMAN UNION in this respect. But, in ICIEC member states, including advanced countries such as Saudi Arabia, UAE, Türkiye, Egypt, as well as countries in Africa and Asia, Takaful-based solutions in the credit and investment insurance landscape have gained traction. However, several challenges persist in underwriting transactions and projects. These challenges include:

• Policy Limitation: as seen in the limited availability and suitability of Takaful-based insurance policies that specifically cater to credit and investment risks. Developing comprehensive and tailored policies aligned with Shariah principles is crucial to address this challenge.
• Limited Market Penetration: due to limited awareness and understanding of Takaful-based credit and investment insurance among businesses and financial institutions. Increasing market awareness through targeted marketing campaigns, education, and training programs can help overcome this challenge.
• Credit Information and Structured Product Challenges: affects the potential of assessing creditworthiness, managing counterparty risks, and developing suitable products for complex transactions. Collaboration between ICIEC, member states, and industry stakeholders can address these challenges through the sharing of expertise, conducting risk assessments, and developing innovative products.

ICIEC’s cooperation with the AMAN UNION, the premier professional forum for commercial and non-commercial risk insurers and reinsurers within the member countries of the Organization of the Islamic Cooperation (OIC), can facilitate knowledge exchange, capacity building, and collaborative initiatives to address these challenges in underwriting transactions and projects – policy, market, credit, product, lack of reinsurance capacity – in member states, both in credit insurance advanced countries such as Saudi Arabia, UAE, Türkiye, Egypt and others in Africa and Asia.

Given the manifold emerging risks and tensions in the global geopolitical, economic, trade and investment, climate-related and catastrophic events landscape, it is inevitable that this is affecting the business side of credit and investment underwriting in terms of premiums, claims, claims ratio and insured exposure. ICIEC is adapting to mitigate and enhance its risk management strategy to meet these challenges head on. ICIEC’s forward-looking Risk Management strategy revolves around the following key considerations:

• In alignment with its multilateral status, ICIEC prioritizes achieving long-term sustainability by ensuring business continuity, portfolio and operational resilience, as well as capital preservation and optimization. This strategic approach not only aims to scale up developmental interventions for Member States (MSs) but also makes a significant contribution to IsDB Group’s overarching strategic directions.
• The enhancement of existing risk management frameworks to adeptly identify and manage emerging and strategic risks amongst others. It emphasizes fostering collaboration between economic sustainability and risk management functions to create a more integrated and responsive approach.
• Streamlining ICIEC’s focus on optimizing capital utilization through the implementation of forward-looking, risk-based capital planning. This ensures efficient allocation of resources and supports ICIEC’s overall financial resilience.
• Scaling up overall performance through the implementation of automated and tailored ERM architectures. This approach contributes to increased efficiency and effectiveness in addressing risks across ICIEC.