American International Group (AIG) is expanding its credit insurance coverage in the Middle East, as it seeks to tap a US$60 million (Dh220.3m) market for insuring trade receivables.
The insurer is expanding again five years after it experienced the financial equivalent of a nearly fatal heart attack, when the collapse of the investment bank Lehman Brothers triggered billions of dollars of credit default swaps it could not afford to pay, precipitating a $182 billion bailout by the US government.
Having exited the US Treasury's life support last year, the insurer is now seeking to broaden its products in new markets, particularly centred around global trade. It is expanding its trade credit insurance in the Middle East for companies that trade in excess of $25m.
The insurer was seeking to help UAE-based companies mitigate risk in their dealing with trading clients around the world, said William Clark, AIG's UK head of trade credit, at the product's launch in Dubai yesterday.
"If that client doesn't pay, we'll pay you against that invoice," he said. "It's a backstop against bad debts."
Appetite for credit protection has risen as banks seek the safety of insurance before they extend lines of credit. Bank financing was slack in the UAE last year, with an increase of 3.3 per cent during the first 11 months of last year to Dh1.1 trillion, according to data from the Central Bank. Figures for December are yet to be released.
Emirates trade totalled €324bn (Dh1.589 trillion) during 2011, according to data from Eurostat, with its role as the regional hub for trading and re-exporting resulting in a lucrative source of business for financial firms.
Banks including Barclays and JPMorgan have beefed up their corporate finance teams as trade finance becomes viewed as a more cost-effective alternative to the investment bankers who are struggling amid a dearth of deals in the region and a heavier burden of regulation on riskier trading activities.
Interest in insurance from banks and brokerages seeking to protect against defaults by their corporate clients had been "beyond expectations", Mr Clark said.
Despite past concerns about the insurer's underwriting standards, AIG has learnt from its near-death experience during the financial crisis, Mr Clark said. The company exited from the US government's support last October, returning a profit to the US taxpayer of $22.7bn.
"We're now fully unencumbered from the US government and have paid back our dues," he said. "This gives us the opportunity to look to certain markets and grow externally.