Page 22 - October 2022 Issue 611 Part 1

ued to be elevated, these remained stable and significantly concentrated in the hardest-
hit sectors.
By year-end, the recovery was relatively solidified, despite new variants of covid emerging
periodically throughout the year, accompanied by sporadic lockdowns across many regions
and the gradual phase-out of some of the pandemic-induced government support mea-
sures. This was supported by continued higher demand for goods – as opposed to services
– and rising commodity prices. Surprisingly, according to the Berne Union Report, short-
term export credit, especially revolving cover, has seen the strongest performance, with
cover for commodities experiencing the highest growth rates.
However, estimating the value of trade credit insurance to the world economy remains diffi-
cult for various reasons. In June 2022, the International Credit Insurance and Surety
Association (ICISA), which represents 84% of the private insurance market, for the first time,
published estimates for 2020 on the role of trade credit insurance in global trade. The key find- nale and significance of this capital increase for ICIEC’s operations and activities
ings show that only 14.52% of world trade in 2020 was protected by credit insurance.
Total global credit insurance premium reached €12.07 billion, and the total value of
insured shipments globally (the value of all shipments of goods for which trade credit
insurance is provided) amounted to €6.35 trillion. Private insurers represent 61% of the
global credit insurance market. Similarly, its members’ insured exposure to trade credit
insurance increased to €2.75 trillion in 2021 compared with €2.4 trillion in 2020.
ICIEC took a balanced approach, supporting the Member States
to combat the pandemic
• How has ICIEC coped with its operations and mandate in delivering risk mitiga-
tion and credit enhancement to its Member States in 2021, and what are the
lessons learnt from the experience?
- ICIEC is subject to the same vagaries, impacts, and risks unfolded by the current state
of the global economy as conventional counterparts, which it has responded to with
urgency and prioritization in tandem with the IsDB Group entities and under regional
and international partnerships. Given the underdeveloped ECA culture and credit insur-
ance market penetration in the OIC states, there is huge scope for multiplier opportuni-
ties subject to the usual caveats.
Despite a challenging year and the ongoing global economic impact of the pandemic,
ICIEC reported Business insured totalling US$9.79 billion in 2021. Of this cover, sup-
port for Exports and Imports accounted for US$7,556.0 million, and support for FDI
totalled US$2,241.0 million. This directly supported the energy, manufacturing, services,
infrastructure, health, agriculture, and other sectors.
Its business results show a year of unprecedented risks, shifting priorities, and the IsDB
Group COVID-19 response initiatives. Despite the impact of the pandemic on insurance
operations and the steep decline in market rates of investment insurance operations,
Corporate Net-Results for 2021 stood strong at a US$ 9.3 million surplus equating to a
182% achievement of the Business Plan target for the year.
New Commitments in 2021 amounted to US$3,076.4 million. Total support for the
Member States provided in 2021 reached US$14,216.0 million, of which Exports
accounted for US$6,227.0 million, Imports for US$5,017.0 million, Outward Investment
for US$731.0m and Inward Investment US$2,241.0m. Cumulatively, gross utilization of
ICIEC support since inception (1994) in 124 countries reached US$166,620.0 million,
demonstrating the transformative impact of ICIEC operations and activities.
ICIEC is also a strong supporter of promoting intra-OIC trade and investment. The total
value of Intra-OIC Trade and Investment supported by ICIEC in 2021 reached
US$4,480.0 million.
Risk management is a continuous vital function for all institutions, whether Development
Finance Institutions or private sector companies. Disruptions caused by conflicts such
as the war in Ukraine, health events such as the COVID-19 pandemic, natural disasters
due to climate change, and catastrophic events such as earthquakes, terrorism, and
civil unrest, unleash a spate of existing and new risks that all stakeholders have to con-
front and try to mitigate.
Many lessons were learnt from the pandemic experience. ICIEC, for instance, immedi-
ately implemented comprehensive risk management measures. ICIEC Management
and the Board of Directors are regularly updated with appropriate market intelligence,
enabling them to respond in a swift and informed manner to new developments. To
closely monitor the Corporation’s financial soundness and resilience, ICIEC – amongst
other measures – introduced regular Member State vulnerability tests as well as portfo-
lio stress tests, closely tracked overdues at the portfolio level, exchanged early-warning
exposure experiences amongst IsDB Group entities and adjusted its investment strate-
gy to be more defensive.
ICIEC also has a Preferred Creditor Status from member states. ICIEC has leverage to
solve the delay in payment, especially with the governments and the central banks.
During times of uncertainties and disruptions, ICIEC, under its mandate, redoubles its
efforts to ensure member countries have access to essential goods, supplies and equip-
ment in energy, food staples and health care to ensure no one is left behind. ICIEC has
recently made significant strides to strengthen its risk management paradigm and
achieved appreciable milestones.
Throughout the pandemic period, ICIEC took a balanced approach, supporting the
Member States to combat the pandemic while maintaining a sound portfolio with robust
risk management, prudent underwriting, and loss minimization efforts. Undoubtedly, the
pivotal role of Risk Management helped ICIEC successfully navigate the crisis period
and uphold its strong credit profile.
The Corporation’s target of implementing a fully-fledged Enterprise Risk Management
(ERM) architecture to achieve its strategic goals sets the priorities for the coming Five-
Year Risk Strategy (2021-25). The ERM framework shall be bespoke and forward-look-
ing, tailored towards ICIEC’s multilateral status and self-regulated business model
adapted by the COVID-19 paradigm shift and new ways of Business.
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The core risks of ICIEC’s business operations stem from underwriting trade credit and
political risks through the Policyholder’s Fund, investment operations of its
Shareholders Fund, and counterparty risks arising from outward reinsurance of its insur-
ance exposure. Other risks arise from its overall activities in diverse and complex forms
being a specialized multilateral insurer.
Strong support of ICIEC’s 48 Member States for the Corporation
and its strategic growth plans
• ICIEC’s Board of Governors increased the Corporation’s capitalization at their
Annual Board Meeting in Sharm El Sheikh in June 2022. Can you explain the ratio-
going forward?
- The substantial capital increase announced by our Board of Governors at our Annual
Meeting held during the 47th Annual Meetings of the IsDB Group in June 2022 in Sharm
El Sheikh, Egypt, is the Corporation’s 3rd Capital increase to date.
The Board of Governors approved a 150 percent increase in The Authorized Capital of the
Corporation from its current ID0.4 billion to ID1.0 billion and a 268 percent increase in the
Subscribed Capital by ID500 million to ID797 million. In addition, the Board of Governors
approved a Special Share Class comprising 20 percent of the increase in Subscribed Capital
(ID100 million) for subscription by financial institutions owned/controlled by the Member
States. The ID (Islamic Dinar) is the unit of accounting of the IsDB Group. One ID is equiva-
lent to One SDR (Special Drawing Right) of the International Monetary Fund (IMF). On 7 June
2022, One SDR equalled US$1.34. As such, One ID equalled US$1.34, respectively.
I must stress that the Capital approval underscores the strong support of ICIEC’s 48
Member States for the Corporation and its strategic growth plans. Capital is important
for a multilateral insurer because it governs our ability to underwrite more Business and
boost our reinsurance capacity. The Board recognized the need to increase the capital
of ICIEC for it to continue to do its job and carry out its mandate effectively. Furthermore,
the capital increase will enhance ICIEC’s financial strength, boost the loss-bearing equi-
ty resources, improve internal capital generation capacity, help to continue its operation
on a solid foundation, and strengthen its credit fundamentals.
ICIEC understands the critical need for alignment with ESG principles
• The Global Climate Crisis is one of the most pressing issues of our time for gov-
ernments, international agencies, businesses, and the lives and livelihoods of our
citizens. The UN COP27 takes place in Sharm El Sheikh in November. Climate
change results in various risks in which insurers have a strong absorption and
mitigation role. Can you elaborate on ICIEC’s Climate Action Strategy?
- The Global Climate Crisis is one of the significant development challenges of our time,
together with food security and post-COVID-19 pandemic socio-economic recovery.
There is a global financing shortfall of US$1.15 Trillion for Climate Action projects,
including Climate Change Mitigation and Climate Change Adaptation by 2030.
Effective climate action cannot be achieved by governments alone. Partnerships with
multilaterals to deploy innovative de-risking solutions are critical to creating bankable
projects in high-risk markets. Multi-stakeholder collaboration is vital to unlocking institu-
tional investor assets. Political risk insurance (PRI) and credit enhancement have a
track record of effectively de-risking and thus catalyzing private sector investment into
emerging markets through capital-efficient instruments to meet development objectives.
Deploying de-risking solutions in combination with debt and equity financing can mate-
rially increase the flow of private sector capital into emerging and developing
economies. Credit insurance protects exporters and their banks against non-pay-
ment/default by obligors which commercial or political risks may cause. Banks use cred-
it insurance for risk mitigation and management, such as loss compensation, safe-
guarding continuity, stabilizing cash flows, and credit monitoring.
We are guided by specialist global institutions such as the Intergovernmental Panel on Climate
Change (IPCC) and, of course, by the development needs and agendas of our Member States.
The IPCC’s latest report shows that without immediate and deep emissions reductions
across all sectors, limiting global warming to 1.5°C is beyond reach. As such, acceler-
ated, equitable, and resilient climate action in mitigating and adapting to climate change
is critical to sustainable development.
Against such an evolving climate finance playbook, ICIEC’s climate action strategy
gains urgency in recognizing the climate risks faced by its 48 member states; support-
ing climate mitigation policies and projects through the risk management solutions pro-
vided by credit and investment insurance, reinsurance and guarantees, and through
cooperation with the IsDB and its sister entities including ITFC, ICD, and ISFD. We
strongly believe that international stakeholder cooperation is a critical enabler for
achieving climate change mitigation goals, which are implicit in the UN 2030
Sustainable Development Goals (SDGs) Agenda to which the IsDB Group is signed.
As a signatory to the Principles for Responsible Insurance and the fact that it is the only
Shariah-compliant multilateral insurer, sustainable investment is now embedded in
ICIEC’s due diligence process by linking all new Business and other queries with SDG
and climate action indicators.
Trade and Climate are closely interlinked. Today’s emphasis is not only on cleaner energy but
also on cleaner exports, imports, investments, and guarantees. We recognize that address-
ing climate change through decarbonization will take a coordinated international effort over
the long term, requiring lasting partnerships between the public and private sector par-
ticipants. Our role in supporting member states, companies, and partners to win clean
growth contracts and transition away from fossil fuels will be critical in the race to net
zero.
ICIEC’s Development Effectiveness Framework is closely aligned with IsDB Group’s 10-Year
Strategy, the President’s 5-Year Programme (P5P), and the Group’s commitment to the 17 UN
SDGs, the Paris Climate Agreement, and the UN Principles for Responsible Investments (PRI).
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