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Survey Report

Insurance Marketplace Realities 2022 Spring Update – Political risk

Credit, Political Risk and Terrorism
N/A

April 7, 2022

Against a backdrop of the first full invasion of one European country by another since World War II, political instability has continued to escalate in many countries around the world, and multinational corporations will need to navigate social unrest and political volatility.
Rate predictions: Political risk
Trend Range
Most risks:
Political risk Neutral Increase Flat to +20%

Key takeaway

Against a backdrop of the first full invasion of one European country by another since World War II, political instability has continued to escalate in many countries around the world, and multinational corporations will need to navigate social unrest and political volatility.

The crisis between Russia and Ukraine has triggered sanctions and political uncertainty in Europe.

  • U.S. sanctions have targeted Russian financial institutions, specific individuals and entities, and new debt and equity restrictions. Stringent export controls have been implemented to restrict access to cutting-edge technology inputs.
  • Broader ramifications of the crisis include spikes in energy and commodity prices. Ukraine exports more than 40% of its wheat and corn to countries in the Middle East and Africa where price increases can exacerbate existing economic tensions and increase potential for social unrest.

In general, emerging economies have continued to recover from the pandemic, although governments with large post-pandemic debt burdens continue to face the difficult choice of risking sovereign default or cutting debts aggressively and potentially provoking social unrest.

  • Countries suffering large pandemic debt-related downgrades included Argentina, Brazil, Chile, Colombia, Ecuador, Indonesia, Jordan, Malaysia, Mexico, Peru, the Philippines, Senegal, South Africa, Thailand, Tunisia and Zambia.
  • Protests in Kazakhstan turned bloody as authorities crushed the protest movement, and thousands were detained. Rising fuel prices and dissatisfaction with the government sparked discontent among a population faced with a decline in living standards.
  • One year after Myanmar’s military-led coup, the country faces the threat of civil war. While most of the violence has been between civilian protestors and members of the police and military, occasional violence has been directed toward companies believed to be Chinese-owned, as some protestors believe Beijing has been supportive of the military’s actions. Multinational companies risk getting caught in the crossfire, and the threat of embargo or sanctions has led to several divestitures.
  • Turkey’s unconventional monetary policies have caused the lira to fall to a two-decade low. With rising inflation rates and decreasing purchasing power, labor strikes have picked up across several sectors.
  • A military coup in Burkina Faso adds to the spate of recent coups and coup attempts in West Africa, which have rocked Guinea, Mali, Chad, Niger and Guinea-Bissau. Root causes include increased poverty, unemployment, corrupt leadership and a youth bulge welcoming promises of radical change. Many observers are concerned about a return to the rampant upheaval of the early postcolonial era.
  • Belarus faced crippling sanctions from the U.S., the U.K. and the European Union, for which western firms operating in the country may experience direct or indirect retaliation.
  • Tensions between the West and China continue. Lithuania became the latest recipient of Chinese retaliation after criticizing China and allowing Taiwan to open a representative office in Vilnius. Concerns over human rights violations in Xinjiang, tension in the Taiwan Strait and South China Sea, as well as an ongoing U.S.-China technology conflict will contribute to growing political risk in the region.

We are following several trends in the political risk insurance marketplace.

  • The marketplace continues to experience rate increases, particularly for countries where political risks have risen.
  • Property carriers are increasingly excluding strikes, riots and civil commotion from policies; the resulting gaps in coverage can be addressed through political risk insurance.
  • Capacity for China, Russia, Ukraine, Brazil, Turkey, Peru, Honduras, Haiti, Argentina, Myanmar, Chile and Belarus appears to be tightening.
  • For multiyear programs in force, underwriters cannot increase rates, and insureds are enjoying the insulation from rate increase for the life of the programs (usually three to five years).
  • Market conditions are also more challenging in certain sectors, such as technology.
  • Carriers are maintaining a selective approach, insisting on increased due diligence.
  • We advise multinational companies to maintain a proactive approach to their global portfolio.
  • For more detail on political risks in specific industry sectors, please see our recently published reports in collaboration with Oxford Analytica:

Disclaimer

Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).

Each applicable policy of insurance must be reviewed to determine the extent, if any, of coverage for losses relating to the Ukraine conflict. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include coverage relating to the Ukraine conflict. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal and/or other professional advisors. Some of the information in this publication may be compiled by third-party sources we consider reliable; however, we do not guarantee and are not responsible for the accuracy of such information. We assume no duty in contract, tort or otherwise in connection with this publication and expressly disclaim, to the fullest extent permitted by law, any liability in connection with this publication. Willis Towers Watson offers insurance-related services through its appropriately licensed entities in each jurisdiction in which it operates. -The Ukraine conflict is a rapidly evolving situation and changes are occurring frequently. Willis Towers Watson does not undertake to update the information included herein after the date of publication. Accordingly, readers should be aware that certain content may have changed since the date of this publication. Please reach out to the author or your Willis Towers Watson contact for more information.

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Senior Vice President, US Political Risk Product Leader
Political and Credit Risk

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