Liberty Mutual Insurance has formed a $1 billion risk-sharing agreement with the Overseas Private Investment Corp. (OPIC), the U.S. government’s development finance institution, which furthers the company’s diversification strategy in a market when organic growth is hard to find.
The deal is part of Liberty Mutual’s strategy to grow its public sector business, diversify its credit insurance portfolio and access new markets, explained Edith Quintrell, underwriting development director, Financial Risks Solutions, Liberty Mutual.
Under the OPIC deal, Liberty Mutual is providing credit insurance on a 50/50 quota-share basis for loans to financial institutions in emerging markets, she said.
While the $1 billion loan facility comprises $500 million of capacity from Liberty, matched by $500 million from OPIC, Liberty Mutual’s maximum exposure is $25 million per loan, said Quintrell in an interview with Insurance Journal.
She noted that Liberty has included additional limits relating to how much money can be loaned in any single country or region as well as the maximum amount that can be loaned to any single entity, “which helps us manage concentration in the portfolio.”
Liberty has delegated the underwriting and loan origination to OPIC, said Quintrell.
“We spent a lot of time doing due diligence on OPIC. We went through their procedures, their policies, and looked very closely at their track record. As a result we were very comfortable with them as a partner.”
How does the facility work? Quintrell explained that when OPIC originates a loan to a commercial bank in Latin America, for example, then Liberty shares the risk of loan default with OPIC. “If the loan is not repaid or there’s a default, OPIC can turn to Liberty for part of that loss. It’s an insurance covering nonpayment under these loans.”
Quintrell said that Liberty Mutual first approached OPIC last year “because we have a strategy that we put in place a couple years ago to try to do more business with public sector entities.”
“OPIC was very interested in our proposal, which was consistent with their mandate to mobilize more private capital,” she said. “Ultimately, it could enable them to lend more than they currently can do and have a greater developmental impact.”
When the deal with Liberty was first announced in November 2018, OPIC said it was the first agreement it had made with a U.S. owned insurance company to share credit risk across a global portfolio of OPIC-originated loans to commercial banks and other non-bank financial institutions.
In conjunction with the launch of the OPIC-Liberty Mutual co-investment platform, more than $235 million of funding is being deployed to several financial institutions operating in Central & South America and Africa, which underscores OPIC’s strong interest to quickly achieve the intended objectives, said OPIC in the announcement.
These loans are designed to advance the U.S. government’s development finance goals with investments that “drive economic growth, build critical infrastructure and empower women throughout the developing world,” added OPIC. The agency said the funds will benefit to hundreds of women-owned businesses and small and medium-sized enterprises (SMEs) in emerging nations.
“This billion-dollar platform is a significant milestone in creating innovative approaches to catalyzing private sector capital to meet global challenges,” said David Bohigian, executive vice president, OPIC, in a prepared statement issued when the deal was announced.
“Liberty Mutual is fully committed to providing effective credit and political risk insurance products globally,” commented Peter Sprent, head of Financial Risk Solutions, Liberty Specialty Markets, in the same statement. “Partnering with public agencies like [OPIC] is an important way for us to approach this market. We benefit from OPIC’s high standards of due diligence – including environmental and worker rights safeguards – and credit monitoring.”
Liberty formed a similar arrangement in 2017 with the International Finance Corp. (IFC), which is part of the World Bank Group. Munich Re also participated in that facility.
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