reinsurance for a private sector bank guarantee.

The guarantee is issued by the Inter-American Development Bank -- IDB -- to cover a $100 million loan provided by a syndicate of commercial banks. The syndicate's loan is to VBC Energia SA -- VBC -- to finance the expansion and modernisation of two of Brazil's electricity distribution companies, Companhia Paulista de Forca e Luz and Rio Grande Energia.

The $100 million IDB guarantee of the loan covers risks associated with currency inconvertibility, transferability and funds expropriation, which could stem from political change. Sovereign assumes a portion of the guarantee risk under a $50 million reinsurance policy.

Price Lowenstein, president and chief executive officer of Sovereign, said: "I am extremely pleased about the opportunity to support the IDB's private sector operations. Sovereign works with financial institutions and bilateral and multilateral agencies on a global basis, and we are very proud to be the first private sector underwriter to reinsure the IDB. This is another important first for Sovereign.'' The IDB was established in 1959 to help accelerate economic and social development in Latin America and the Caribbean. It is the largest and the oldest regional multilateral development institution with an active loan portfolio of $49 billion and 46 nations as members.

In 1995 the IDB was authorised to lend up to five percent of its ordinary capital resources to the private sector, complementing its lending in direct support of economic and social development.

Use of reinsurance is one way the IDB seeks to leverage its resources and enhance its capabilities to guarantee private sector transactions in its member countries. The reinsurance contract for this project will be a model for other similar reinsurance contracts between the IDB and private sector insurers.

IDB private sector manager Hiroshi Toyoda said the contract with Sovereign was a groundbreaking transaction that will allow the IDB to better support private sector operations in the IDB's member countries throughout the region.

"We are delighted to be working with Sovereign as they are one of the world's leading political risk insurers and have the experience and financial strength to complement our private sector operations,'' he said.

Sovereign is a Bermuda-based specialist political risk insurer and reinsurer that is a joint venture between XL Insurance and ACE Bermuda Insurance.

Its portfolio is in excess of $4 billion of exposure spread over 60 emerging markets and its clients include financial institutions, national export credit agencies, multilateral institutions and multinational corporations.