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Our Political and Credit Risk Claims Review 2019 

Financial, Executive and Professional Risks (FINEX)
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By Claire Simpson | January 29, 2020

61% of companies polled in our 2019 Political Risk Survey believe that political risk levels have risen since 2018, with 68% of companies having suffered a political risk loss.

Against this backdrop it comes as no surprise that 2019 has been a busy year. Notably however the amount of claims paid decreased to $49.2m in comparison to 2018 ($91.5m). So why has it been busy when the statistical evidence points to the contrary?

Paid claims are only one measure for the insurance industry to consider. Credit and political risk claims can have long lead times with issues being on the horizon for considerable periods before tipping in to default or loss. Our sense is that the 2019 paid statistics belie the current global challenges and the amount of issues we are monitoring with our clients.  The IMF in its October 2019 World Economic Outlook1 has described the state of the global economy as precarious. Tensions are on the rise again in the Middle East,  trade volumes are down year on year (CPB World Trade Monitor December 2019)2 and the Director General of the WTO reported on 12 December 2019 that trade restrictions by its members are at historically high levels.

Losses this year have been felt around the globe. Claims are on the rise in Latin America, the Middle East, Asia and of course Africa.

Our global credit and political risk claims 2008 to date - $1.175bn

Africa has remained a conundrum in 2019. Promising growth indicators cannot mask a legacy of unsustainable debt.  The Republic of Congo, Mozambique and Zimbabwe are already in distress and there may be headwinds coming for countries like Zambia and Ghana. Issues linger at both the sovereign and sub-sovereign level with currency inconvertibility and payment risks prevailing and the insurance market facing material exposures. We continue to monitor several material “wobbles” where clients and insurers are concerned that issues may spill in to a future loss scenario. Sovereign and political risk related incidents still account for over 70% of the 2019 losses, continuing the trend seen in 2018 and marking a change from the previous years of heavy credit losses.

Loss sectors have been varied, though the lion’s share of 2019 losses were concentrated in and around the oil and gas sector, which is notable as many emerging markets remain particularly vulnerable to commodity price shocks.

After a record-breaking year for recoveries in 2018 ($92m), recoveries have continued to be buoyant this year with over $56m being recovered on old year losses.  Debt sale has proved the most commonly used means of recovery, though recoveries have also been achieved through sale of secured assets including stocks, plant, land and vessels etc), which is encouraging news for insurers and clients alike. Contract Frustration and political risk recoveries do still however far outweigh those in the credit space with over 95% of this year’s recoveries coming from CF and PR codes.

2020 will be an interesting year. No doubt Africa will continue to feature in the loss statistics and we are bound to see the knock on consequences of the China-US trade issues affecting credit risks particularly in Asia, as we are already monitoring potential casualties. The forthcoming US presidential elections and ongoing issues like Brexit mean that political risks will firmly stay on the corporate agenda and losses are likely to remain elevated.

1. https://www.imf.org/en/Publications/WEO/Issues/2019/10/01/world-economic-outlook-october-2019
2. https://www.cpb.nl/en/worldtrademonitor

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