The market for political risk and trade credit insurance buying has grown in capacity by 30% in three years
Credit and political risk insurance (CPRI) has grown by 30% since 2015, according to research from broker BPL Global.
Evidence for growth in credit risk insurance was reinforced by Allianz’s announcement within the past week that the German insurer had increased its investment in Euler Hermes – a specialist credit risk insurer – to reach 92.43% ownership.
Infrastructure projects in African countries have been one source of demand for covers, insurer Beazley recently told StrategicRISK, particularly contract frustration covers among European banks and multinationals in the utilities, energy and extractive sectors.
Maximum lines for non-payment private obligor risks and public obligor risks have risen to $2.4bn and $3bn, respectively, with increased appetite for longer duration deals, said BPL, which maintains offices in London, Paris, Singapore, Hong Kong and Dubai.
Speaking to StrategicRISK, insurer XL Catlin pointed to the Democratic Republic of Congo as a potential flashpoint; the country has a large cobalt mining sector (commonly used in batteries), but faces endemic corruption and potential for political instability in 2018.
BPL’s “Market Insight 2018” report was based on market surveys and analysis of its own portfolio.
Analysis of the portfolio showed African exposure at $7.75bn, some $6.45bn for the Middle East, plus another $5.46bn in Latin America.
BPL’s exposure in Europe stands at $3.65bn, reflecting increasing coverage for project finance and non-trade business in OECD countries.
The largest values of claims handled by BPL have been on contracts covering Ukraine ($509bn), Russia ($195bn) and Brazil ($187bn).
The report also highlighted significant capacity for non-trade related credit risks and project finance business.
For non-trade credit business – some $1.5bn of total capacity – is available for policies with tenors of up to seven years, although BPL said “meaningful volumes” ($700m) remain for risk tenors of 10 years.
“Our report shines a spotlight on the fact that appetite for the CPRI class is on an upwards trajectory – both in terms of capacity and tenors,” said Sian Aspinall, managing director, BPL Global.
“Furthermore, analysis of market data clearly shows that it adapting its capabilities to match natural return on investment for areas such as project finance structures, providing coverage for up to 25 years,” she continued.
“Also notable is the jump in capacity for non-trade related credit insurance to over US$1.5bn – an area previously constrained by Lloyd’s regulatory requirements – and increasing levels of coverage for transactions in OECD countries,” Aspinall added.