Research

Marketplace Realities 2018: Political risks

November 6, 2017

    The one thing

    Never expect the status quo to simply continue: most political risk losses hit insureds who have never encountered a political risk claim before and are completely taken by surprise.
  • Political risks continue to rise across the globe, as evidenced by increased claims from investors and companies operating in Ecuador, Thailand, Ukraine, Brazil, Colombia, Libya, Venezuela, Panama, Nigeria and Egypt in a wide range of sectors: agribusiness, energy, consumer products, financial institutions and telecom.
  • Once bright spots in the global market, Brazil and Turkey are examples of emerging markets that have seen worrying political developments that may lead to disruptions for foreign investors operating there.
  • Some see the Trump administration and U.K.’s Brexit creating uncertainty in the global market with their retreat from free trade.
  • As tensions with North Korea continue, companies operating in the Asia Pacific region, especially in South Korea, have sought political risk insurance.
  • Despite these developments, the political risk insurance market remains open and competitive due to a continued influx of capital. Overall, rates have not generally increased, but markets are keeping an eye on the following locales:
    • South Korea. The election of President Moo Jae-in, a human rights lawyer, came at a time of rising tensions with North Korea. The new U.S. position of elevated pressure on the North Korean and Chinese governments to limit the North Korean nuclear program has spiked tensions further, raising concerns about military action. Most markets are still open to South Korea (and Asia) risk but are actively monitoring their aggregates and may soon increase rates on new business.
    • Price prediction

      Most risks
      -2% to flat

      Active hotspots
      Capacity limited
    • China. The Chinese economy grew at 6.9% during the first months of 2017, partly due to a rise in infrastructure investment, but there are concerns about a potential housing bubble and high levels of debt in the economy. China increasingly finds itself in the spotlight as North Korean missile tests continue, and Communist Party leadership elections are scheduled for October of this year. Some major markets are completely full on China capacity, so we encourage any prospective insureds with Chinese exposures to quickly consider their risk.
    • Turkey. With President Erdogan and the AKP party’s increasing influence over the judiciary and the centralization of power, there may be acceleration in the use of state powers against individuals and companies regarded as insufficiently supportive of the government. The public markets of OPIC and MIGA are full on Turkey risk and private markets are raising rates.
    • Qatar and the GCC (Gulf Cooperation Council). The breakdown in diplomatic relations between Qatar and a majority of its GCC neighbors (mainly Saudi Arabia and the U.A.E.), and some other Arab states caught many investors by surprise. The closing of land, sea and air borders has negatively affected imports, particularly food imports. Markets are extremely limited in their appetite for Qatari risks. Markets are generally still open in Saudi Arabia and the U.A.E. but actively monitoring the situation.
    • Mexico. The government of President Enrique Pena Nieto faces a deteriorating economic situation that has been greatly complicated by the signals coming from the Trump administration. There is some concern about the potential for renegotiating NAFTA, given the complex industrial supply chains that have developed between the U.S. and Mexico. A significant renegotiation would markedly alter the market across the continent. Generally, markets are still open to new Mexico risk.