S&P affirms African Trade Insurance Agency credit rating on expansion
After its recently concluded annual review of the African Trade Insurance Agency (ATI), S&P Global Ratings has affirmed the company’s ‘A’ for Financial Strength and Counterparty Credit as well as its “Stable’ outlook.
The rating is based on ATI’s increased market penetration, expanding shareholder base, and an expectation of continued expansion and stabilization of its preferred creditor status.
In the report, S&P notes “ATI’s expansion and relevance in the region is bolstered by its strong shareholder support.
It currently has 23 paid-up shareholders, including the African Development Bank, and its shareholder base has grown from seven initial member countries to 14 fully-fledged member countries. In the past two years alone, Ethiopia, Cote d’Ivoire, South Sudan and Zimbabwe have joined.”
With five prospective new members in the pipeline, including Nigeria and Ghana, S&P stated that they expect “this momentum to continue over the medium term.”
ATI’s rapid business growth supported by a more diversified portfolio also led to S&P’s assessment of a “strong business profile”. For instance, ATI’s Gross exposures have increased by 23% in 2017 to USD2.4 billion compared to USD872 million in 2013.
In the report, ATI’s business profile was seen to be constrained by the potential pace of sovereign recoveries and member Government’s treatment of ATI’s preferred creditor status, which is meant to ensure automatic reimbursement by governments for any sovereign claims incurred.
S&P acknowledged that payment delays from four member governments in 2016 and 2017 have now mostly been resolved, with the exception of Tanzania, which recently had its outstanding sovereign arrear of USD4.2 million deducted from its capital contribution to ATI.
An increase in ATI’s commercial (non-sovereign) claims was assessed as in line with larger underwriting volumes and the broader industry standard.
To rectify the issue of sovereign arrears, in 2016 ATI implemented a series of measures that include mandatory notifications and no objection requests for Political Risk Insurance transactions as well as strengthening strategic partnerships with member countries with the help of a newly hired Sr. Investment Relations Officer.
ATI also expects to hire key staff to strengthen its risk management function.
George Otieno, ATI’s Chief Executive Officer, remarked “Expansion and prudent risk management have been key pieces of our strategy for some time. S&P’s current assessment affirms that what we have been doing is, we believe, moving us in the right direction to obtaining an eventual A+ rating, which ATI targets over the medium term.”
ATI has maintained the current ‘A’ rating for the last 10 years