Uncertainty drives demand for credit and political risk cover

08 August 2017

Credit and political risk (C&P) market conditions are generally soft but with hard pockets.

This reflects claims activity: post ‘commodity super cycle’ mining and soft commodity pre-financing are challenging.

Mozambique's default and expropriation in Colombia add to this with notified credit and political risk claims at an estimated $3 billion globally.

Insurers remain hungry for state-sponsored infrastructure development, however.

Conditions in the terrorism and political violence (PVT) market and the kidnap and ransom (K&R) market remain soft and very favourable to clients, although the successful hijacking of ships off the horn of Africa (the first since 2011) is an interesting development and is being closely monitored by insurers.

At this stage the attacks have been limited to small, unsecured vessels, travelling close to the coast, and have not affected market rates.

Demand for political insurance cover

Latent concerns relative to global volatility remain the main driver of demand for credit and political cover, exacerbated by uncertainty post Brexit, Trump and in relation to the EU’s future. North Korea’s recent actions are stark a reminder of this. Revisions to multinational corporates’ regional or investment strategies have a powerful ripple effect. The economic cost of brinkmanship is unpredictable and can be considerable. Often the negative knock-on effects are felt most by those other than the main protagonists.

For banks, regulatory capital relief continues to be a major motivation. For corporates, prudent management against the backdrop of geopolitical and macro-economic uncertainty is a significant underlying driver.

With PVT, there is a move from purchasing sabotage and terrorism to full political violence cover.

Tips for buyers

Request a 10-minute catch-up with one of the CPS specialists as both product and risk developments mean that policies you've relied on over the years may now be out of date.

For further information, please contact Edward Nicholson, Senior Partner on +44 20 7528 4522 or email edward_nicholson@jltgroup.com

contact Edward Nicholson
Senior Partner, Credit, Political & Security Risks