The prospect of home ownership will no longer be a dream for thousands of Argentinian families following a reinsurance agreement between a specialized World Bank  group agency, the Multilateral Investment Guarantee Agency (MIGA), and a Lloyd's of London syndicate.

The April 1st 1999 agreement with Lloyd's ACE Global Markets' Syndicate 488/2488 will cover a $50 million  loan by Lloyd's Bank of the United Kingdom to its wholly owned subsidiary in Argentina to expand its residential mortgage operations. The funds will be on-lent through Lloyd's Bank network of 51 offices  in Argentina for  residential mortgages. In addition to enabling more Argentinians to own  their  own homes and improve living standards generally, the project will generate a large number of jobs in the local construction industry, and serve as a boost to manufacturers of building products, furniture, household appliances and related consumer goods.

Said Ian Cheyne, managing director, International Banking, Lloyd's Bank Plc, "We are pleased with   MIGA's continued support in providing sufficient amounts of high-quality guarantee coverage in developing countries. We look forward to continuing our long-standing relationship with MIGA." Under the terms of  the agreement, by which MIGA has extended its cooperation with private insurers, ACE Global Markets has reinsured $31 million of the total exposure of $50 million. The agreement is the first MIGA has signed with Lloyd's ACE Global Markets' Syndicate 488/2488. Said the syndicate's deputy underwriter, Jack Gressier, "we are honored to be associated with MIGA in reinsuring this project. This first step will be one of many for ACE Global Markets in building a successful long-term relationship with MIGA."

Reinsurance is a common way for insurance companies to share risks and diversify their portfolios, explained  Christina Westholm-Schroder, Manager, Syndications and Business Development, MIGA Guarantees Department. "In a treaty insurance arrangement, the primary insurer agrees with the reinsurer that the reinsurer will participate and share liability and loss payments, as well as premiums, in accordance with pre-arranged terms," she said. "MIGA is using reinsurance to leverage its own insurance capacity and efficiently manage its portfolio.  Reinsurance provides MIGA with a tool to enhance its developmental mandate and provide larger amount of coverage for worthy projects than would otherwise have been the case."

MIGA's collaboration with ACE Global Markets follows a coinsurance arrangement with Lloyd's of London's Brockbank Syndicate Management Ltd., under  MIGA's Cooperative Underwriting Program (CUP).   "The CUP is another tool for MIGA in leveraging its   insurance capacity," said Ms. Westholm-Schroder. MIGA recently issued an insurance contract under this agreement to cover a loan made by Westdeutsche Landesbank,  one of Germany's leading banks, for a project in Turkey.

MIGA was created in 1988 as the insurance arm of the World Bank Group to provide political risk insurance to  investors in developing countries and investment promotion services to developing country governments. The mortgage guarantee project serves to further the relationship between MIGA and Argentina which is the largest   recipient of the agency's guarantees. The Latin American and Caribbean region altogether account for 45 percent of MIGA's portfolio, with $1.3 billion in issued coverage for projects in the banking, manufacturing infrastructure and mining industries. Worldwide, MIGA has issued $4.6 billion in insurance covering approximately $27 billion in foreign direct investment in 63 developing countries.

Regarding the eligibility of this project, Ms. Westholm-Schroder noted that "All MIGA projects need to meet rigorous criteria in terms of the developmental benefits to   the host country. Certainly the provision of long-term mortgages meets such criteria." She added that MIGA  ensures projects are financially and technically sound and comply with World Bank environmental guidelines.

By allying with private sector insurers, MIGA has demonstrated its flexibility in fulfilling its mission.

by Charles Duerden