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Global Financial Solutions Claims Review 2021

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February 25, 2022

Credit and political risk insurance (CPRI) and political violence losses rose again in 2021.

Last year was quite the year in the world of non-payment, credit and political risk insurance (CPRI) and terrorism and political violence losses – including losses from some surprising places. Trade credit still stands apart with less activity.

CPRI losses rose again, coming in at $118.5 million (compared to $53.6 million in 2020), taking 2021 to the fifth highest loss year since WTW has tracked such figures. Two main types of losses drove the increase:

  • Credit losses stemming from Asia and the Middle East rose steeply. Indeed credit losses overtook sovereign losses for the first time since 2017, with borrower fraud featuring more frequently.
  • Sovereign pay-outs were also up though, not just in Africa but also in Latin America, once again reflecting the global nature of our portfolio and the continuing economic and political challenges our clients face.

Africa continues to dominate the rolling five-year average CPRI claims, totalling 52% of all losses, but this year a large Middle Eastern credit loss dominated the WTW headlines.

Bar chart outlines contract frustration, credit risk and political risk in line with the US Dollar. Credit risk in 2010 being the highest at $200million. Credit risk in 2010 being the highest at $200million.
CPRI Claims since from 2008 to 2021 highlights contract frustration, credit risk and political risk.
Bar chart outlines the claims by region including Africa, Asia, Latin America, Europe and Middle East from 2008 to 2021.
What regions experienced the highest CPRI claims since 2008 to 2021

Looking to trade credit, losses remained lower than pre-pandemic levels, though the reduction in 2021 insolvency numbers was less dramatic than in 2020. In countries where COVID-19 pandemic restrictions continued in 2021, governments provided interventions and temporary amendments to insolvency legislation that likely insulated many companies from the worst consequences of lockdown.

Big increase in political violence losses

Terrorism and political violence losses, however, increased materially in 2021 to $4.4 million, up from $300,000 in 2020. Activity in Africa and Latin America continued as expected. Starkly over half of the loss activity was in the U.S., highlighting that protest and pressure for social change is a global phenomenon and that security issues can happen anywhere and at any time.

Percentage breakdown of the terrorism and political violence claims, USA totalling 50% Latin America at 30% and Africa at 20%
A percentage breakdown of the terrorism and political violence claims for USA, Latin America and Africa

Loss activity is not the only thing on the increase. Reassuringly we have seen a return to stronger CPRI recovery rates too after a 2020 slowdown, primarily through secondary market debt sales. In 2021 clients returned $34 million of paid claim monies to insurers, reflecting the enduring partnerships forged in our marketplace with some recoveries dating back as far as the 2005 year of account.

Bar chart outlines claims recoveries Annual Breakdown, from 2010 to 2021, 2018 being recorded as the highest year for recovery claims.
An annual breakdown of the CPRI Claims between 2010 and 2021

Looking ahead

As we look to 2022, we anticipate more loss activity. Emerging (hopefully) into a post-pandemic world, economic uncertainty will remain, and without the overarching government support packages that have sustained us for so long, it seems inevitable that non-payment loss activity will continue, growing too for trade credit insurers as insolvencies start to increase. Indeed, some of the main monoline insurers are forecasting a material uptick in insolvency rates of 15% to 33% globally, with regional variations. Fraud also will remain a concern as reduced trade will expose companies that rely on constant growth. As insolvencies rise, we can expect the unemployment rate to follow resulting in possible social dissatisfaction likely driving more outbursts of violence and protest leading to possible political violence losses.

On the horizon, 2022 also promises some significant elections globally including presidential elections in Angola, Philippines, Kenya and Brazil that could lead to increased tensions and challenges for lenders, exporters and investors caused by the disruption that often follows a change in government.

What remains clear is losses will come at us from all sides – even from the most unexpected places – so clients must remain vigilant in their risk mitigation efforts.

Disclaimer

Willis Towers Watson offers insurance-related services through its appropriately licensed and authorised companies in each country in which Willis Towers Watson operates. For further authorisation and regulatory details about our Willis Towers Watson legal entities, operating in your country, please refer to our Willis Towers Watson website. It is a regulatory requirement for us to consider our local licensing requirements.

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Scott B. Ettien
Trade Credit and Political Risks

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