PATH-BREAKING: The 75th Annual General Meeting of the Berne Union held in Seoul last month adopted the resolution to accept ICIEC as a permanent member.

THE accession of the Jeddah-based Islamic Corporation for the Insurance of Investment & Export Credit (ICIEC), a member of the Islamic Development Bank (IDB) Group, as a permanent member of the Berne Union, the international organization and community of leading export credit and political risk insurers, is a major achievement. But to what extent it will boost a culture of export of credit insurance in the member countries of the IDB must remain a moot point.

Abdel-Rahman Taha, the general manager of ICIEC, was rightly confident at the 75th Annual General Meeting (AGM) of the Berne Union held in Seoul, South Korea, last month when the accession resolution was adopted. “This is an important landmark achievement for the corporation as it signifies its acceptance as a partner by top export credit agencies and major private sector credit and political risk insurers and reinsurers in the world. This is a historic development for ICIEC which will undoubtedly have a positive impact on its business, helping it to better serve its member countries going forward,” he added.

Membership of the Berne Union means that ICIEC will have access to a wealth of information and technical expertise that will be exchanged with other members of the Union, who are key players in the export credit and investment insurance industry.

Export credit and investment insurance in IDB countries is relatively underdeveloped compared to the West where the US Eximbank, the UK’s ECGD, France’s Coface, Germany’s Euler Hermes, Sinosure of China, EDC of Canada, Japan’s NEXI, EKF of Denmark, South Korea’s Keximbank, and Atradius, Zurich, have dominated the scene. Of the multilateral agencies, MIGA of the World Bank is the major player.

Of the IDB member countries that have long established ECAS, only Malaysia with its MECIB and Turkey with its Teximbank — both relatively major exporters and or investors — support their national companies to the same extent. A decade or so ago there was talk of setting up a GCC export credit agency, and the Indian Eximbank, one of the more established ECAS from the developing countries, was commissioned by the GCC Secretariat to do a feasibility study for such an ECA. However, the idea fizzled out and nothing materialized due to the chagrin of many GCC exporters, who like others face potentially enormous risks exporting to countries, especially emerging ones. One reason may be that with record budget surpluses due to high oil prices, GCC countries did not feel the urgency for export credit insurance support for their major exporters, who were mainly confined to the oil and gas sectors and sectors such as aluminum and foodstuffs. However, last month in Beirut 20 Arab and Islamic Export Credit Insurance Agencies (ECAs) and export import banks (exim) banks launched the Aman Union, which aims at enhancing cooperation among Arab and Islamic export credit institutions and encouraging the development of investment and export credit insurance in member countries. The union will also offer technical assistance to establish new agencies and to enhance the insurance capacity for existing agencies.

Not surprisingly, the main driving force behind the ‘Aman Union’ is ICIEC’s Dr. Abdel-Rahman Taha in cooperation with the Arab Investment & Export Credit Guarantee Corporation (Dhaman) and the Lebanese Credit Insurance (LCI). “The Aman Union is the first organization gathering investment and export credit agencies in the Arab and Islamic world under one umbrella. I have no doubt that it will be an excellent platform for technical cooperation and development of the credit insurance industry in member countries,” he stressed at the union’s opening meeting in Beirut at the end of October 2009.

The establishment of ICIEC in 1994 with the mandate to encourage exports form member countries and to facilitate the flow of foreign investment to member countries by providing and encouraging the use of Shariah-compliant export credit and investment insurance/reinsurance as credit and political risk mitigation instruments was indeed a milestone for the macro Islamic financial services industry.

The total exports of the 56 IDB member countries at the beginning of 2008 amounted to $1.443 trillion, while the total imports amounted to $1.112 trillion. But intra-IDB trade totals a mere 14.5 percent. As such, the potential for boosting intra-IDB trade is huge and with this there is a concomitant market for Islamic export credit insurance. It remains a question of government support or the development of privately owned ECAs, at least for short-term cover, as is the trend in developed economies.

ICIEC’s achievement under the stewardship of its able General Manager Taha in a relatively short time of 15 years is impressive given the constraints of its balance sheet in terms of capital and general resources, especially in its formative years. At the beginning of this year, ICIEC’s membership had reached 39 countries including 17 Arab countries, 13 African counties, and nine Asian and European countries. The two latest countries to join include Albania and Oman. But, as Taha would agree, many of these countries had to be dragged toward ICIEC membership because the export credit insurance culture was virtually non-existent in most IDB member countries.

In Fiscal Year 2008, ICIEC’s export credit insurance business totaled $1.445 billion, while the claims paid to policyholders amounted to $0.65 million, resulting in a modest net surplus of $0.708 million. The cumulative export credit insurance business of ICIEC to date exceeds $5 billion.

Taha was adamant that “ICIEC succeeded in maintaining its positive results despite the current global economic recession which has increased credit risks. This proves the corporation’s ability to manage the underwriting risks and its readiness to offer such insurance services to the private sector in its member countries to enable them expand their trade transactions and attract foreign investments into them.”

Last year also, Moody’s Investors Service, the international rating agency, assigned for the first-time an insurance financial strength rating (IFSR) of Aa3 to ICIEC with a rating outlook of stable. Moody’s noted that ICIEC’s rating reflects both the stand-alone fundamentals as well as potential support from its shareholders, the IDB Group member countries of which Saudi Arabia and Iran are by far the two largest.

Despite the absence of explicit guarantees, in the context of its key role as facilitator of member countries’ Exports and Inward Foreign Investments, Moody’s concluded that ICIEC’s rating reflects the strong ability and potentially willingness of ICIEC’s main ultimate shareholders to support the company in times of financial distress.