ATI’s entry into the bonds market reaps positive first year results, linked to Africa’s rapid infrastructure growth
Since insuring its first bond in 2013, the African Trade Insurance Agency (ATI) has seen a steady growth in demand from banks and insurance companies eager to increase their capacity. In 2013 the company recorded a Gross Exposure of $20.5 million on their bonds products. Preliminary results for 2014 indicate that year-end Exposures will surpass 2013 by a significant margin. Infrastructure is seen as the main driver behind this demand.
“We launched this product to fill a market gap. There are multi-million dollar infrastructure projects going up, which all require performance and other types of bonds from banks and insurance companies. Our first year results coupled with the steady rise in demand affirms our initial assessment that the market needs more capacity to keep up with the pace of project development on the continent,” notes Attaty Kodjo, one of a team of ATI Underwriters responsible for building the company’s bonds portfolio.
Banks typically back performance bonds but their requirements for this risk are quite high. In addition, the capacity issue has caused many banks to limit their lines of credit to contractors. In light of the gap, ATI’s solution has been a relief to many banks. To underscore this point, a Pan-African lender, which was one of ATI’s first bank clients, recently announced that ATI’s cover increased their capacity by 70%.
Insurers are also taking advantage of ATI’s entry into the bonds market. To date, ATI has signed onto the Quota Share treaties of the top regional insurers operating in East Africa (EAC) – a region that is taking proactive steps to streamline the bond process. The EAC launched an innovative “regional bond” product in 2013, which is expected to be a one-stop-shop approach. The new regional bond replaces the previous requirement for importers, for instance, to secure bonds from both the point of origin and the destination country.
According to Souvik Banerjea, ATI’s Senior Marketing Officer and another member of the bonds team, “this new policy development should provide a much-needed boost to trade within the region. Instead of seeing goods coming from Europe or Asia, this initiative will spur the manufacturing base in regional markets. This reach goes beyond our business to actual economic impact on the ground.”
ATI initially targeted a limited number of countries – Kenya and Tanzania – but given the product’s successful performance they have revised their strategy. The company will now focus on additional countries including Uganda and Zambia.
ATI provides counter-guarantees for banks and reinsurance support for insurance companies and, in the event of limited insurance market capacity, ATI is also able to issue bonds directly to project sponsors or contracted firms where required. ATI currently offers covers on advance payment, bid, customs & warehousing, maintenance, money retention and performance bonds.