(Bloomberg) -- Swiss Re AG, Tokio Marine Holdings Inc., AXIS Capital Holdings Ltd and AXA SA are among providers of $3 billion in credit-risk insurance for the private-sector arm of the World Bank Group, as it seeks to expand its lending in emerging economies.
The policy provides payment protection for a portion of loans that the International Finance Corporation will extend to companies in regions including Latin America, Asia and Africa, said a representative for the Washington-based multilateral lender in an emailed reply to questions.
The transaction, which is part of the IFC’s Managed Co-Lending Portfolio Program, is its first credit-risk insurance deal targeting loans to non-financial companies. The IFC aims to boost investments in sectors such as energy, transport, media and technology and metals and mining. The bulk of the facility, which will be executed over the coming six years, is focused on financing to companies with credit ratings ranging from BBB-, the lowest investment-grade level, and B, which is five steps lower.
Credit-risk insurance, or CRI, enables lenders to reduce capital they have to set aside to cover risks in their existing business, or to avoid exposures that surpass set limits. That frees up capacity to pursue new business.
“It is really about getting together with credit insurers, which as commercial entities frequently tend to play in a limited way in the emerging markets,” said Kruskaia Sierra-Escalante, senior manager at the IFC’s Treasury & Mobilization department, which oversees the MCPP programs. “For the first time we are partnering with credit-risk insurers to support projects outside of financial institutions.”
SCOR SE, Munich RE, Everest Group Ltd, Hartford Financial Services Group, HDI Global SE, Liberty Mutual Holding Company Inc., Apollo Global Management’s Aspen Insurance Holdings, Allianz SE, Chubb Ltd. and Japan’s Sompo Holdings are also taking part in MCPP Real Sector program, the IFC said in a statement. CRI is being provided via the firms’ insurance divisions or units focused on such deals
The new facility will boost capacity under all IFC’s MCPP platforms to more than $19 billion, the lender said.
CRIs are part of the toolbox that financial institutions use to mitigate credit risks on their loan portfolios. In contrast to investors in significant risk transfers, which are typically the holders of the first loss or mezzanine portions, in CRIs the insurers absorb losses just as the same time as lenders on the uninsured part.
(Adds Chubb to list of insurers involved in the deal.)
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