The Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC) says it has signed a US$42 million facultative reinsurance agreement with Saudi Export Import Bank (Saudi Eximbank) for a documentary credit insurance sub-policy limit in favour of Riyadh Bank with a tenor of up to 12 months.

The Shariah-compliant multilateral insurer and member of the Islamic Development Bank Group says the sub-policy comes under the master facultative reinsurance agreements signed by the two entities in 2021.

Specific risk cover

Facultative reinsurance is a type of reinsurance in which the terms of each individual transaction are negotiated separately between the primary insurer and the reinsurer.

This allows the primary insurer to customise the coverage for each transaction, and can be used to cover a specific policy or risk. It also allows the reinsurer to select which risks to assume and at what rates.

L/C coverage

Under the agreement, ICIEC will provide Shariah-compliant reinsurance covering up to 70 per cent of Saudi Eximbank's exposure under a documentary credit insurance policy for commercial and political risks.

The sub-policy enables coverage of letters of credit (L/Cs) confirmed by Riyadh Bank for several Saudi commercial banks.

It will also provide cover for the confirmation of L/Cs to support trade transactions by commercial banks in Saudi Arabia and ICIEC member states.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.