Sovereign Risk Insurance Ltd., a joint venture between Bermuda’s XL Capital and ACE Ltd., announced that it has agreed with the Inter-American Development Bank to reinsure half of a $100 million loan made to Brazil’s VBC Energia S.A. to enable two private power companies to upgrade their infrastructure.
The IDB loan to the private sector is a first of its kind and a first for Sovereign. According to a Sovereign press release, the $100 million guarantee covers “risks associated with currency inconvertibility, transferability and funds expropriation. Under the reinsurance policy, Sovereign assumes a portion of the guarantee risk.”
In 1995 the IDB was authorized to loan up to 5 percent of its capital to private sector operations. A reinsurance guarantee allows the organization to increase the funds available for these types of loans, and the IDB anticipates that it will become “a model for other similar reinsurance contracts between the IDB and private sector insurers.”
Price Lowenstein, president and CEO of Sovereign said he was “extremely pleased about the opportunity to support the IDB’s private sector operations.” He predicted increased activity for private sector underwriters in this area as a result.