Insurance Marketplace Realities 2023 Spring Update – Political risk

The Ukraine/Russia conflict brought political risk insurance into sharp focus, particularly its non-cancellable, multi-year terms.

• The conflict brought the non-cancellable nature of PRI into focus as the war peril under marine can be cancellable, and property policies exclude “war and hostile acts.”
• Coverage in political risk policies is non-cancellable by the carrier for the entire policy term (multi-year).
• Policy terms in political risk are multi-year, often three to five years, with some carriers offering a 20-year period.
• We encourage clients to take the longer policy periods to extend the guarantee of coverage and rate.

China capacity is in demand, but supply has narrowed considerably.

• A common theme regarding multinational companies has been: If what’s happened with Ukraine and Russia happens elsewhere (such as Asia-Pacific, which is more financially significant to us), how can we protect these scenarios with political risk insurance?
• A few carriers continue to offer limited capacity, but the supply has decreased considerably per graph.
• Remaining capacity generally excludes companies in the technology and defense sectors.
• WTW encourages the review of exposures across Asia -Pac particularly in an Asia-Pacific maritime dispute scenario which has the potential to be wide reaching.

Recent election outcomes showcase shift left

• We have witnessed a spate of left-wing election outcomes in Latin America in the last couple of years from, most recently, Colombia, Brazil, Peru, Honduras, Argentina and Chile among others. Some analysts cite frustration from citizens of the governments in the wake of COVID-19, coupled with inflation pressures.
• Peru has seen unrest following the ouster of President Pedro Castillo and some local opposition to mining.
• Colombia elects its first leftist president in Gustavo Petro; Lula returns to Brazil.
• Mexico’s investment climate has garnered attention recently with the introduction of a reform bill that may affect foreign investor’s interests, particularly in the sectors of mining, energy, construction and rail, in addition to open-source news regarding a port seizure, brewery closure and cancelled airport project.
• Increasingly Latin American-headquartered companies are seeking and taking up political risk insurance.

In our recent Political Risk Index, we examine the question of whether country alliances are changing, noting that, per our matrix and methodology, of the 61 countries mostly in the developing world, half had changed alliances over the past five years.

We encourage clients with exposures abroad to proactively consider political risk-transfer options for their country(ies) of interest before it becomes front page news to guarantee non-cancellable, multi-year cover.