Political risk hotspots reflect a changing market

Political upheaval around the world is nothing new, but the rise of rolling 24 hour news coverage means that such changes and movements have never been more in the public eye. The election of Donald Trump as US President, the Brexit referendum or Marine Le Pen making the run off in France were all widely covered in the media, and they all rattled the stockmarket. On top of these events, there has been conflict in Syria, Yemen and Crimea, while there has also been the unfolding crisis in Venezuela and a (peacefully) toppled government in Brazil. When it comes to political risk insurance (PRI), the hotspots are forever shifting. The insurance industry has responded to that, although what customers need and what coverage can be provided is not always mutually compatible. Furthermore, trying to predict where the next flashpoint on the world stage is going to be is a complicated process. Frédéric Bourgeois, global head of business development, single and political risk and managing director, and Jean–Christophe Cavanna, senior commercial manager single risk business, at Coface spoke to Reactions about where they see the key changes – and possible areas of growth and concern – arising in the near future. Issues remain about Russia, Bourgeois and Cavanna state, with sanctions and other government-led actions on foreign investments a cause for concern. “We’re watchful of the US regulator, and what they say and do in the future,” said Cavanna, adding: “And its existing policies that are the worry – not new ones.” PRI hotspots remain in Africa - a mix of those countries with bloated petro and commodities-focused economies like Gabon and Mozambique, and those which have the potential for an economic turnaround but are also mired in political problems such as Egypt and Zimbabwe, Bourgeois and Cavanna note. “Turkey is also very hot right now,” Cavanna says. The country’s economy continues to do well, although upheaval and government-led changes have seen businesses wax and wane in recent times. “The Middle East isn’t as big, and former Soviet Republics in the region (both the Caucasus’ nations and the central Asian ‘Stans’), are well equipped for PRI,” Cavanna said pointing to the large infrastructure projects and heavy industry in those areas. However, Cavanna did add that there is not a lot of PRI exposure in the region. Cavanna spies real opportunities for the PRI market in South East Asia, with Singapore particularly well adept at tapping into the sector what with many leading re/insurers already having a presence in the city-state. “Singapore is growing,” he says, adding: “Presently there are about 55 companies in London, and about 36 in Singapore – both Lloyd’s syndicates and company markets.” A series of large claims in Latin America have also helped to drive PRI interest for assets in the region, Cavanna said. “Buyers in this region are looking to diversify their coverage,” said Cavanna, explaining that there is an increasing trend of clients looking to have lines or protection across Latin America rather than having a few larger limits in just one country. A changing market There has been considerable talk about the commoditisation of some aspects of the insurance industry. PRI is a very specialist marker however, with bespoke coverages a key aspect of the industry. But is a more commoditised offering a possibility? If so, it may prove to be a way of growing the market. Bourgeois is unwilling to commit, instead highlighting how companies are spreading their coverage around rather than focusing solely on protecting larger assets. “You’re more likely to get companies spending $20m there and another few million here, rather than putting $150m on one line,” Bourgeois said. Pricing in the PRI market remains soft, Bourgeois said, pointing to the surfeit of capacity that resides in the market as the main reason.

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