Research

Insurance Marketplace Realities 2019 – Political Risk

November 6, 2018

Rate prediction

  Trend Range
Political risk Neutral Flat

Key takeaway

Because political risks are inherently difficult to predict, global companies should take a proactive approach in addressing political risks in their portfolio and act with urgency before crises unfold — insureds with political risk policies will be glad to have protection in place for countries of rising risk, such as Russia, Turkey, Brazil and China.

Times of international tension intensify the interest in political risk solutions

  • Trade war rhetoric has foreign investors concerned about retaliatory measures in host countries, including restrictions on currency transfer, holding up goods in customs, revocation of import/export licenses or outright embargos, sanctions, boycotts and expropriations.
  • Major geopolitical developments giving rise to political risk include deterioration in U.S.-Russia relations, heated U.S.-China tariff talks, election of a leftist government in Mexico, continued political crises in Brazil and Argentina, and the recent currency deterioration in Turkey.
  • Middle East destabilization lingers on, as evident in the continued Gulf Cooperation Council boycott of Qatar and the unresolved Syrian civil war.
  • Recent claims in the political risk market have spanned multiple sectors (consumer products, manufacturing, food and beverage, oil) demonstrating that geopolitical risk is not limited to certain industries.
  • Interest in political risk cover is particularly high with regard to China, Mexico, Russia, Nicaragua, Turkey, Argentina, Egypt and Hungary.

Currency inconvertibility and non-transfer have become increasingly popular political risk coverages.

  • Markets are extremely cautious with risks in Nigeria, Angola, Azerbaijan, Ethiopia, Egypt and other cash-strapped, commodity-dependent countries that have seen some currency inconvertibility/non-transfer losses.
  • The losses highlighting this exposure (the inability to convert local currency into hard currency and/or transfer any currency out of a foreign country due to local capital controls) are inspiring buyers to seek higher limits.

The political risk insurance market remains open and competitive due to a continued influx of capital.

  • The total capacity per risk has surpassed $3 billion, more than doubling the capacity of $1.3 billion available a decade ago.
  • New markets continue to enter the field, while long-time political risk carriers and Lloyd’s syndicates increase their capacity.
  • There has been some M&A activity in the PRI underwriter space, with modest impact on the marketplace.
  • Despite a steady increase in claims recorded by Lloyd’s from 2014 to the present, the marketplace remains healthy and keen to write new business. Rates are generally flat except in high-risk countries, where rates can be considerably higher.