Capacity in both the credit and political risk insurance markets is close to an all-time high, despite rising risks across multiple emerging market jurisdictions. ‘The Structured Credit and Political Risk Market Update’ from Gallagher (the insurance broker, risk management and consulting services company) compiles credit and political risk commercial insurance capacity from across insurers in the market. The latest report evidences high levels of confidence, despite challenging increased global political and economic risks.
Looking at each of the insurance classes, capacity has changed from January 2019 to January 2020 as follows:
*Political risks up 3.1% to $3,189 million
*Trade risks (sovereign) up 1.8% to $3,123 million
*Trade risks (commercial) up 3.9% to $2,475 million
*Non-trade up 11% to $1,752 million
Over the past decade, market capacity for political risks has risen by 137%, trade risk (sovereign) by 175% and trade and risks (commercial) by 252%.
This significant expansion of available cover means that investors are able to expand their portfolios and assets in territories where previously they may have felt unable to do so. It also reflects the growing maturity of this insurance market as investors demonstrate increased confidence in this type of cover and the risks that it can help mitigate.
Heightened emerging market risk
Market capacity has risen despite a period of heightened emerging market risk driven by:
*Anti-incumbent political sentiment across Latin America, with regime change in Bolivia, Argentina and Uruguay and mass protests in Ecuador and Chile threatening stability across the region
*Increasing civil unrest across the Middle East and North Africa region. Iraq, the Lebanon and Algeria have all seen significant strikes, protests and violence alongside corruption, while unemployment (particularly among younger people) and a distrust of political regimes look set to continue to fuel widespread discontent
*Deteriorating current account balances in oil-producing and extractive-focused nations, and exchange rate and budget balance pressure for those nations with high USD debt
Matt Solley, managing director of credit and political risks at Gallagher, said: “The data in our latest report is encouraging and demonstrates that brokers and insurers alike can provide the products and solutions to enable the investment market to continue to grow. There are rapidly evolving challenges facing emerging markets, but the credit and political risks insurance market remains supportive of investors, corporates, financiers and traders across both these territories and more established markets. This is not the case in many other commercial insurance lines where capacity is a significant issue.”
Solley concluded: “Over time, market innovation has both opened up and supported access into emerging markets and broader underlying asset classes, while insurance is acting as a critical enabler of enterprise. Its resilience and growth during this period of heightened risk continues to provide crucial support to the global economy.”