EXIM Bank on Public-Private Risk Sharing
Export-Import Bank of the United States (EXIM) President and Chairman Kimberly Reed, made six promises to senators during her confirmation process, one of which was to “increase protections for U.S. taxpayers.”
And today, EXIM can announce that it has taken a big step toward this goal – thanks to the reinsurance industry.
EXIM operates like an insurer in that it aims to reduce financial risk. It does this mainly through three programs designed to supplement the private sector:
- Medium and long-term financing for foreign purchasers of U.S. goods – mostly conducted through an EXIM-backed guarantee for a bank or other financial institution;
- Short-term working capital for U.S. exporters – also conducted through an EXIM-backed guarantee to a bank or other financial institution; and
- Short-term insurance products that protect U.S. exporters against the risk of foreign non-payment of receivables.
EXIM has Congressional authorization to carry up to $135 billion on its books, making the bank an important tool in the U.S. government’s trade toolbox.
In 2018, EXIM launched a $1 billion pilot program with the intent to reinsure some of its risk with private capital.
EXIM tends to carry most of its risk in its medium and long-term programs, which range from 1 to 18 years. These are larger projects, such as transactions of high-cost capital equipment, multi-year services contracts, infrastructure projects (roads, bridges, ports, etc…), and new technologies, like the rollout of 5G.” And they require significant due diligence and underwriting – much the same as one would expect to see in the banking sector. But the typical EXIM project would not be underwritten by private lenders due to risk concerns – the agency is built to fill financing gaps. EXIM’s team members are experts in evaluating political risk and use data available to them from across the U.S. government to do so.
In her first year on the job, beginning in May 2019, Chairman Reed prioritized expanding this pilot program, and in February 2020, EXIM issued a Request for Quotation for advisory services related to a program expansion. EXIM received strong interest from brokers and banking institutions and ended up selecting the leading global professional services firm Aon as its broker partner.
“Aon is proud to partner with EXIM in its important work to help increase U.S. exports, grow American jobs while protecting U.S. taxpayers,” said Joe Monaghan, CEO of Aon’s Public Sector Partnership, an arm of Aon that works exclusively with government clients on innovative public-private solutions. “EXIM’s commitment to collaboration and innovation with the private sector is a great example of how thoughtful public-private partnerships can close the growing protection gap, build resilience, and drive improved outcomes for all stakeholders.”
This new contract will help EXIM develop a larger program at the exact time when the capital markets are yearning for opportunities. EXIM often plays a counter-cyclical role in the economy and COVID-19 has proven no different – EXIM has received a significant increase in interest in its products as the economy rebounds. EXIM says this new contract isn’t just a win for capital markets; it’s also a win for U.S. taxpayers.
EXIM is not the only agency primed for this kind of risk-sharing arrangement. For example, the National Flood Insurance Program also reinsures a portion of its risk and there are others considering the same. Agencies like the U.S. International Development Finance Corporation and the U.S. Small Business Administration, as well as elements within the U.S. Department of Agriculture’s Foreign Agricultural Service are ripe for this same kind of credit risk transfer.
Luke Lindberg is the former chief of staff and chief strategy officer of Export-Import Bank of the United States.