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Survey Report

Insurance Marketplace Realities 2020 – Political Risk Insurance

Credit, Political Risk and Terrorism

November 13, 2019

As we move toward a multipolar world with nationalism on the rise, American businesses may come under scrutiny not only because of who they are but also where they are.
Rate predictions
  Trend Range
Low-risk countries Neutral (yellow line) Flat
High-risk countries neutral increase +10%

Key takeaway

As we move toward a multipolar world with nationalism on the rise, American businesses may come under scrutiny not only because of who they are but also where they are.

Companies could be caught in the crosshairs of an increasingly confrontational geopolitical landscape exposing them to sanctions, import/export embargoes, revocation of licenses and selective discrimination.
  • A shift in the geopolitical landscape toward nationalism and populism is taking hold in many places across developed and developing markets.
  • As international relations are influenced by a trend from a unipolar to a multipolar order, some analysts predict increased competition between adversarial great powers and more clashes for regional dominance.
  • We advise global companies with exposures in countries mentioned below to seek political risk cover while capacity is available.
The impact of global and regional geopolitical tensions is felt not only by companies operating on the ground but also by businesses whose supply chains are connected to these regions. Observations on some key markets include:
  • China: Mass demonstrations in Hong Kong against the government-proposed Fugitive Amendment Bill have brought some retail and hospitality business in the administrative region to a halt. Several international businesses have gotten caught in the escalating conflict, particularly if they are perceived as taking a stance in the heated debate. In the meantime, U.S.-China trade war rhetoric continues unabated.
  • Middle East tensions remain high as the blockade imposed by the Gulf Cooperation Council on Qatar enters its third year. The recent attack on Saudi Arabia's oil fields via drones left the country's oil output stalled for days and escalated tensions with Iran.
  • Long-simmering tensions between Japan and South Korea took a dramatic turn when Japan imposed export controls on semiconductor material shipped to South Korea, prompting business associations to call for a swift resolution.
  • Colombia: In addition to the humanitarian and economic crisis across the border in Venezuela and a surge of refugees into Colombia, there is now increased fear of regional conflict following Venezuela's alleged harboring of a FARC splinter group and Venezuela's conducting military exercises along the Colombian border.
  • Brexit is proving to be a protracted battle for the U.K. government internally, showcasing the political risks in developed markets.
  • Upcoming elections: Argentina's general elections in the fall will decide the fate of President Macri, who faces an uphill battle for reelection. Ukraine's next parliamentary elections will determine the makeup of the next government, and President Volodymyr Zelensky's party may win a first-ever one-party majority in the Parliament, which would help advance his reform agenda.
While political risk markets remain competitive due to an influx of capital, we are now observing country capacity shrinking in several jurisdictions.
  • The total capacity per risk has surpassed $3B, more than doubling the capacity of $1.3B available a decade ago, which has kept the marketplace competitive.
  • However, we are starting to see capacity shrinking in high-demand countries, such as China and Mexico, where rates may rise due to increased political risk.
  • Additionally, we foresee capacity decreasing for higher risk countries, such as Argentina, Pakistan, Nigeria, Angola, Azerbaijan, Guinea, Mozambique and Zambia.
Political risk losses and insurance innovations are both expanding.
  • Currency inconvertibility/non-transfer and business interruption continue to be popular political risk coverages in the face of rising losses.
  • Recent claims experience has prompted policy wording enhancements, such as shorter waiting periods and broader wordings.
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