Sustainable insurance: Leveraging public funds via new insurance partnerships

Thomas Mahl and Franz Karmann, managing directors at Munich Re sister company Sustainable Finance Risk Consulting (sfr-consulting), explain the firm’s role as an agent of the African Energy Guarantee Facility (AEGF) and the need for the insurance industry to adopt a “risk-vetting” system to enable mobilisation of development finance.

The Sustainable Development Goals’ paradigm shift caused a substantial change in development assistance policy, with the optimisation of the scarce available public development funds – measured by the leverage ratio of mobilised private investments – becoming one of the key performance indicators.

Operating under the enforced maxim of private sector leverage, the development finance industry seeks additional solutions to mobilise the influx of private capital.

However, various crises in recent years have left some strain on donors’ available budget and financial liquidity, forcing them to shift their means of development contribution from funded grants to unfunded instruments, such as guarantees.

Unfortunately these types of instruments, with insurance-akin characteristics, are not the preferred products of the development banks.

Due to regulatory hurdles as well as a proper institutional setup, development finance institutions (DFIs) face issues in administering these types of risk transfer solutions. This is even more obvious when guarantees are covering traditional insurance risks.

Therefore, to deploy and optimise the outreach of public guarantees, a transformation of guarantees into the insurance ecosystem with dedicated regulation for risk transfer solutions is required.

To facilitate this transformation, the insurance market needs to adopt a risk-vetting system which is commensurate with the eligibility criteria of the development finance industry.

A dedicated focus is hereby given to the ESG and procurement standards of development banks, which are one of the prevailing prerequisites for a portfolio being supported by financial instruments.

AEGF as a pilot project

To kickstart and facilitate the deployment of guarantees, the European Commission – together with the European Investment Bank, KfW and Munich Re – set up the AEGF to provide reinsurance capacity to protect sustainable energy projects in Sub-Saharan Africa against political risk.

Focusing on the emphasised leverage of scarce public funds, AEGF is designed to optimise the DFI’s role and responsibility as an advocated trustee by transferring the methodology of development finance into the insurance market.

Risks are shared between (re)insurers and DFIs via a guarantee structure. To ensure deployment of public guarantees according to the eligibility criteria of the development finance world, a dedicated risk-vetting agent is required.

For AEGF, sfr-consulting operates as a facilitator for the public guarantees to equip the primary insurer – ATI – with the monitoring and additional underwriting capacity aligned with the donor’s requirements.

Integration of ESG and procurement requirements

Compared to the development finance market, the integration of ESG and procurement standards in the insurance industry is in its infancy.

The assessment and identification of ESG-relevant risks are hardly reflected in the underwriting process, nor are these risks properly addressed in the insurance policy covenant note.

To close this gap in expertise, sfr-consulting operates as an agent of AEGF with a fully integrated environmental social management system (ESMS).

This allows the firm to support the primary insurer by providing an ESG and procurement underwriting service. In addition, AEGF’s participating insurers are provided with a transparency platform where insured projects and their summarised ESG risks are uploaded.

Finally, as part of the ESMS, sfr-consulting has made a grievance mechanism available for claims and complaints management of AEGF project risks’ stakeholders.


Donors have identified guarantees as an attractive alternative for funded development contributions. To deploy these risk transfer instruments in full swing, a shift in development policy and its existing schema is required.

With AEGF, the European Commission set up a pilot structure which allows guarantees to be used as insurance-akin risk transfer instruments.

The ambitious sustainable goals require innovative and new risk transfer solutions for the mobilisation of private capital where the insurance market could become a substantial contributor.

However, to get access to these business opportunities, ground work needs to be done as any blending of insurance capacity with public guarantees requires a complementation of the insurance underwriting manual according to the ESG and procurement requirements of public donors.