Publications

	Table of Contents
p. 14 of 21 BACK | NEXT I. Introduction II. An Overview of the Political Risk Insurance (PRI) Market III. Review of ADB's Partial Risk Guarantee (PRG) Program IV. Recommendation for Changes to ADB's PRG A. Redefining the Coverage of the PRG Instrument B. Defining the Fee Structure C. Covering Interest D. Introducing a PRG Prudential Limit E. Introducing a Coguarantee Program and a Collaboration Program F. Improving the Product Name G. Improving Communications with the Market and Potential Users H. Creating a PRG Focus Group I. The Use of ADB’s Financing Instruments and Staff Implications J. Summary of Proposed Changes to the PRG V. Potential Benefits of the Proposed PRJ Program VI. Conclusion

Review of the Partial Risk Guarantee of the Asian Development Bank : IV. Recommendation for Changes to ADB's PRG

---

E. Introducing a Coguarantee Program and a Collaboration Program

61. Once ADB has gained some actual experience with the PRG program, and posses the necessary skill base, it is proposed that ADB establish a coguarantee program (CP), similar to MIGA’s CUP program. Close cooperation with MIGA is proposed to share their experience with the CUP program. The terms of the proposed CP would be as follows:

1. Guaranteed Amount. Under the CP, ADB will issue a contract of guarantee for the entire amount of coverage requested by the applicant. However, ADB will retain only a portion of exposure under the contract for its own account. The remaining guarantee capacity will be underwritten by a private insurer or insurers.

2. Contract. Only one guarantee contract will be issued to the insured for the entire amount underwritten under the CP. ADB will be the guarantor-of-record for both the insured and the host government for the entire amount insured, but ADB will assume liability and pay claims only for the portion retained for its own account. Recoveries, if any, will be shared between ADB and the coguarantor on a pro rata basis.

3. Fees. To cover the administrative expenses incurred to structure each CP project and to compensate ADB for “fronting” the coguarantor under the guarantee, ADB will charge the coguarantor an administration fee, by retaining a percentage of the guarantee fee the coguarantor is entitled to under the coguarantee facility.³⁴ The administration fee will be determined by the Guarantee Committee on a case-by-case basis.³⁵

62. The proposed CP would have the following advantages:

1. Increasing Availability of PRI Cover for the Host Country. The host country would benefit from the increased amount of insurance capacity made available, facilitating projects that, without a sufficient amount of PRI capacity, might not go forward. The host government can also take comfort in having a multilateral institution such as ADB involved in the project, knowing that ADB will apply its standard project processing criteria, including an assessment of the project's environmental and developmental impact on the country.

2. Expanding Capacity for the Insured. The insured benefits from the increased guarantee capacity available to cover investments in the DMCs, and enjoys the comfort of an ADB guarantee.

3. Opening Doors of Cooperation with Private Insurers. Private insurers are able to offer coverage in countries where or for projects that they might not be able or willing to handle on their own. Having ADB as the guarantor-of-record is perceived as a risk-mitigating factor. They will benefit from ADB's lending expertise in the country, including ADB's project and risk analysis.

4. Risk Reduction for ADB. The CP will allow ADB to reduce its underwriting risks by coinsuring with other PRI institutions, as ADB will not be liable for pay-outs by other participants under the CP umbrella.

63. It is also recommended that ADB develop a collaboration program to enable private and public insurers to offer guarantees with ADB, under their respective names. This would be most beneficial to insurers that do not need the benefits of ADB’s “umbrella.” In some cases, private insurers may offer guarantees at terms that cannot be easily reconciled under the coguarantee program. In such circumstances, they may find the collaboration program a more effective tool than the CP.

___________________

Back D. Introducing a PRG Prudential Limit	Next F. Improving the Product Name