Research

Insurance Marketplace Realities: Political risk

2018 Spring Update on Commercial Insurance in North America

April 12, 2018

Price prediction

  Trend Range
Political risk: No change or slightly down –2% to flat

Key takeaway

Because political risks are inherently difficult to predict, global companies should take a proactive approach in addressing them in their portfolios and act with urgency before rates increase or capacity shrinks.

Political risk markets are taking a cautious approach toward risks in several countries where domestic or regional geopolitical tensions are on the rise.

While political risk claims continue to rise across geographies and industry sectors, and some insurers have exited the marketplace, increasing capacity from new and existing markets ensure a relatively robust and competitive landscape.

  • As tensions with North Korea continue, companies operating in the Asia-Pacific region, especially in South Korea, have sought political risk insurance.
  • Escalating trade-war rhetoric, disagreement over a diplomatic solution in North Korea, and continued tension in the South China Sea may cause some flashpoints in U.S.-China relations.
  • Countries that were once economic bright spots, including Brazil, India, South Africa and Turkey, have seen political developments that may lead to disruptions for foreign investors.
  • Presidential elections in Egypt, Mexico and Brazil may affect risk factors in those countries. Pakistan, Colombia and Thailand are also poised for major elections.
  • Many investors were surprised by the breakdown in diplomatic relations between Qatar and a majority of its Gulf Cooperation Council (GCC) neighbors — mainly Saudi Arabia and the United Arab Emirates (U.A.E.) — as well as other Arab states.
  • U.S.-Turkey relations remain strained over Syria, the Kurdish opposition and Turkey’s warming ties with Tehran and Russia.

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 several locales.

  • Some markets are closing to the new South Korea risk, while others are actively monitoring their aggregates and may soon increase rates on new business.
  • Markets are extremely limited in their appetite for Qatar risks. They remain open in Saudi Arabia and the U.A.E. but are actively monitoring the situation.
  • The public markets of Overseas Private Investment Corporation (OPIC) and Multilateral Investment Guarantee Agency (MIGA) are full on Turkey risk, and private markets are raising rates.
  • Continued pressure on energy and commodity prices have resulted in tightening of capital controls in several countries that are heavily reliant on them. Markets are extremely cautious with risks in Nigeria, Angola, Azerbaijan, Egypt and other cash-strapped, commodity-dependent countries that have seen some currency inconvertibility and non-transfer losses.
  • Some major markets are completely full on China capacity, so we encourage any prospective insureds with Chinese exposures to quickly consider their risk.