BPL is a broker specializing exclusively in credit and political risk insurance (CPRI) for financial institutions, development finance agencies, multinational corporations, and investors around the world. They work closely with their clients to structure insurance programs for those engaged in international trade, investment, and lending, primarily to protect against the risk of non-payment by borrowers but also in-country political risks. Since their founding in 1983, they have settled over 600 CPRI claims, collecting over $4 billion on behalf of their clients.
Investing in emerging markets often comes with high real or perceived risks. In development finance, risk-mitigating instruments such as non-payment insurance and political risk insurance are crucial to help increase origination capacity and adjust the risk-return profile of transactions so that private investors can enter developing countries. In addition to private investors, more development finance institutions (DFIs) and multilateral development banks (MDBs) are benefiting from these insurance products, bolstering their balance sheets and increasing their lending appetite.
We spoke with Harry McIndoe, Director at BPL, about how insurance is used in the development finance market, BPL’s experience in the blended finance space, advice for those interested in partnering with insurers, and more.
Can you tell us what products you focus on and the scope of the CPRI market?
Our core focus is Comprehensive Non-Payment Insurance. This product is similar to a silent risk participation from an A-rated or double A-rated insurer that sits behind the policyholder, thus protecting them from losses on their funded or unfunded exposures. It covers non-payment for any reason so has a very simple trigger. There are roughly 60 active insurers in this space, all of whom are rated S&P A- or higher, with a large proportion now rated AA-. By swapping the counterparty rating with that of the insurer, institutions can recognise huge benefits in terms of balance sheet management and increasing their syndication capacity.
BPL has been at the forefront of developing the market’s capabilities in recent years, and appetite has expanded to include a wide range of underlying debt instruments and structures. Another focus area is Political Risk Insurance, whereby our clients seek to cover certain specified cross-border country risks, such as expropriation, currency inconvertibility/non-transfer, and war.
Why did BPL decide to become involved in development finance?
Helping mobilize finance to where it is needed most has always been a cornerstone of our work. We have been active in development finance since our inception, helping both commercial and non-commercial institutions mitigate credit and country risk exposures, enable larger ticket sizes, and manage capital/balance sheets. Increasingly, we are seeing the power of insurance in derisking development finance. It has been applied across a wide spectrum of underlying exposures and stretched tenors, in the midst of long-term and disruptive trends.
We are keenly aware that CPRI has an important, and sometimes underestimated, role to play in enabling and accelerating the flow of funds to support sustainable objectives – including the transition to a low carbon economy and the mobilization of sustainable finance to developing markets. As an insurance broker we recognize that our ability to directly influence client investments and lending decisions is limited, nevertheless our clients value our support in helping them accelerate towards sustainable objectives. Additionally, our leading market position enables us to offer incisive market intelligence and drive product innovations that support the proliferation of sustainable finance, infrastructure, investments, and ambitions.
The use of non-payment insurance in blended finance is still niche and often provided by DFIs/MDBs themselves. How has BPL participated in the blended finance space?
Our work with DFIs/MDBs has primarily been on projects supporting the United Nations Sustainable Development Goals (SDGs), such as financial inclusion, infrastructure, healthcare, sanitation, and utilities. While some of these institutions do issue guarantees/risk covers themselves, many work with the private insurance market to increase origination capacity and syndicate a portion of their own balance sheet exposures.
When it comes to MDBs, non-payment insurance is increasingly relevant in helping to action the recent G20 Capital Adequacy Framework recommendations, which underscores the importance of insurance for enhancing lending capacity and enabling MDBs to leverage their balance sheets.
In addition, we are often asked to secure non-payment insurance on projects for commercial lenders where there is DFI/MDB involvement, such as project finance transactions where a DFI might be a co-insurer or lender, A/B loans, and more recently, on “repack” transactions whereby private institutional capital can be crowded in with the benefit of A/AA rated insurance coverage.
Another area where we see engagement is on portfolio and securitization solutions, where the insurance market has considerable appetite to support DFIs/MDBs through a more programmatic approach to risk-sharing and capital management, providing significant benefits at scale.
Our insured portfolio currently stands at approximately $87 billion, with nearly 60% in developing countries. This scale gives us an accurate finger on the pulse of the market and equips us with a real-time view of market appetite across global markets and underlying project types.
What have you learned about the role of the insurance brokers in blended finance transactions?
MDBs/DFIs are not too different from commercial financial institution clients in terms of gleaning the best results out of the CPRI market.
One of the challenges facing insurers in the development finance space is the risk profile of their transactions. DFIs/MDBs have a development mandate, while CPRI insurers active in the market must answer to commercial capital providers. The role of a broker is to navigate this occasional disconnect, underlining the MDB’s preferred creditor status and securing the optimal coverage at the right price, all while keeping in mind that there is a finite amount of credit risk that insurers are willing to take in certain countries.
What advice would you give to participants in the blended finance market interested in partnering with the insurance industry?
A potential risk factor for less experienced DFIs/MDBs when it comes to using CPRI can be a lack of understanding of the product or the insurance market. This emphasizes the importance of using a broker who understands the market and can guide them through the process – ideally one with extensive emerging market experience and a good claims track record. These factors help indicate the strength of the broker in building goodwill and relationships with the insurance market on behalf of its client.
Another critical element when engaging with the insurance market is partnership. If participants embrace that partnership approach and transparency with the market, they can count on a long and fruitful collaboration. Indeed, we find insurers see a lot of value in projects and expertise from DFIs/MDBs and in their origination strategy. Further, insurers tend to appreciate the portfolio and market diversification that such partnerships offer them.
How do you see BPL’s blended finance activities evolving in the future?
The SDG funding gap is a huge area of concern that CPRI can play a vital role in bridging. According to the 2024 Financing for Sustainable Development Report, SDG financing and investment gaps are estimated at between $2.5 trillion and $4 trillion annually. At BPL, we are keen to continue building on our 40-year commitment to the development finance space and advocating for the huge value for development financiers that comes from working with the CPRI market. We expect to see much more involvement for BPL as the role of insurance in helping DFIs/MDBs meet their objectives becomes more visible and as insurer appetite becomes increasingly supportive.
