1

Management Response to 

McKinsey Impact 

Assessment

September 2023

dfc.gov
2

DFC is pleased to announce the completion of an independent evaluation of the effectiveness of DFC’s 

political risk insurance and reinsurance (PRI) products in mobilizing private capital. Most foreign direct 

investment (approximately 65 percent) continues to flow to high-income, politically stable countries. The 

G7 Impact Taskforce identified real and perceived political and macro-economic risks as key constraints 

to private investment in lower-income countries. One of DFC’s core objectives is to help mitigate those 

risks to enable private sector investment that achieves positive development impacts in the countries that 

need it the most. 

In this comprehensive assessment of DFC’s PRI program, the primary goal was to assess the 

effectiveness of PRI in mobilizing private capital by analyzing a portfolio of 14 DFC PRI-supported 

projects. These projects represent about 20 percent of the value of DFC’s total political risk portfolio and 

span ten countries and five sectors. 

DFC commissioned McKinsey & Company (McKinsey) to conduct the assessment. McKinsey’s 

assessment included a literature review of the PRI market, an analysis of DFC’s competitive position 

within the market, and a critical review of the private capital mobilization impact of the 14 projects.

The assessment concluded that DFC’s PRI product is a highly effective tool for mobilizing private capital. 

Across the 14 cases analyzed, DFC’s total exposure of about $1.2 billion directly mobilized nearly $2 

billion in private sector capital. That is $1.60 in private capital mobilized for every $1 of insurance 

exposure. In addition to the direct capital that was mobilized, most of the DFC projects reviewed were in 

industries nascent to the countries, which have high levels of macroeconomic and political risk. As such, 

these projects have significant expected “second order private capital mobilization effects.” This refers to 

situations where investments in DFC-supported projects result in new capital investments in additional 

projects after the initial investment was made — primarily through demonstration effects, infrastructure 

improvements, and regulatory and institutional improvements. 

The study also gleaned some important lessons and recommendations that will enable DFC to more 

strategically and effectively use its PRI product to mobilize private capital, as well as better measure and 

articulate these impacts. DFC is planning to take action to address the following five priority areas 

identified in the study:

Target high-impact segments that match DFC’s strengths. The assessment concludes that DFC’s 

PRI program is well positioned to drive foreign direct investment in several high-impact segments: 

projects that create new markets in the host country; projects requiring long tenors, such as large-scale 

infrastructure and climate finance projects; and projects in the riskiest and most fragile markets. The study 

found that DFC has a market share of more than 30% of PRI in countries with a sovereign rating of 

CCC+ and below.

• DFC is developing a targeted strategy for expanding the PRI product in the sectors and markets 

that build on DFC’s prior success and that will have the most impact, beginning with the most 

immediate need: Ukraine. The strategy will align with DFC’s emerging agency-wide priorities.

Build out go-to-market capability. The study reveals that DFC is seen as passive in its PRI deal 

sourcing, limiting the PRI activities to investors already familiar with DFC. The study recommends that 

DFC take steps to improve its visibility in the market by educating potential clients on DFC’s broadened 

eligibility requirements, promoting its claims avoidance advocacy capabilities, and strengthening its 

image as an agile and private sector-friendly organization.
3

• DFC will work to improve its visibility in the market by building business development capacity. 

This includes hiring dedicated business development staff and developing business development 

tools and training that will strengthen DFC’s outreach to potential clients, headquarters and 

overseas staff, and other development agencies and development finance institutions. 

Crowd in private insurers through reinsurance. The study recommends that, as part of its strategy, 

DFC establish a streamlined approach to source reinsurance through private insurers. DFC is perceived in 

the insurance market as a potential and trusted target of reinsurance from private insurers. Willingness 

amongst private insurers to provide reinsurance to DFC is high, as it allows them to enter riskier markets 

and to benefit from DFC’s claims avoidance advocacy. Moreover, reinsurance can be used as a tool for 

“crowding in” private insurers in cases where investors are insisting on using a public insurer.

• DFC is developing clear and transparent processes to solicit facultative reinsurance from private 

reinsurers to improve operational efficiency, satisfy DFC’s additionality requirement to “crowd 

in” private reinsurers, and mitigate risk to DFC. 

Build internal capacity of DFC’s PRI underwriting and support team. The assessment 

recommends that DFC build on its reputation as an efficient and private sector-friendly insurance 

underwriter by fully investing in its PRI underwriting and support teams and eliminating roadblocks in 

the diligence process.

• As part of its PRI growth strategy, DFC will ensure all avenues of funding for the program’s 

expansion are explored and resourced appropriately — including in support offices. Further, DFC 

conducted an external assessment of its internal processes with the goal of increasing efficiency 

across its operations and is taking action to address improvements. 

Recognize second-order private capital mobilization effects when evaluating projects. The study 

recommends that DFC consider additional options in its methodology for calculating direct private capital 

mobilization for PRI and to provide a holistic and comprehensive picture of the full capital mobilization 

impact of its portfolio, including second-order capitalization effects.

• DFC will periodically review its methodology for how direct private capital mobilization is 

calculated for PRI and implement any needed improvements. In addition, DFC is conducting a 

follow-on evaluation of the demonstration effects of selected renewable energy projects to obtain 

a deeper understanding of how and when DFC can reliably anticipate, measure, and communicate 

DFC’s contribution to second-order private capital mobilization and market impacts.

Elizabeth Boggs Davidsen

Vice President, Office of Development Policy

U.S. International Development Finance Corporation