06 February 2023
Structured Credit & Political Risk Insurance Market Update
In this update, we look at global macroeconomic challenges and, in particular, how they have affected risks faced by those trading with or investing in a range of emerging markets (EMs).
We will also provide an update on the Structured Credit and Political Risk (SCPR) insurance market, address changes in capacity, and highlight market moves over the last six months.
The pandemic, China’s zero COVID-19 policy, and Russia’s invasion of Ukraine have left the global macro-economic outlook uncertain. Supply chains have been stretched and access to important commodities blocked. This has led to soaring inflation, which Central Banks have been forced to respond to with significant interest rate increases.
The strategy seems to be working: US inflation peaked at 9.1% in June 2022 and now sits at around 7%.
However, it is still well above the 2% target set by the Federal Reserve. High interest rates are also affecting borrowing and reducing the spending power of households. This has pushed a number of large economies towards recession, with the UK economy unlikely to reach pre-pandemic levels until 2024. We have already seen the impact of higher interest rates in developing economies, with many countries’ borrowing costs becoming unsustainable.
To counter this, the IMF issued USD 140 billion in bailouts in 2022 - a record amount. Notable countries to have received funds, or those that are currently in negotiation, include: Ghana, Zambia, Sri Lanka, Egypt, Tunisia, Pakistan and Argentina. In light of this stress on the global economy, we anticipate an increased risk to trade and investments in emerging and developed economies. Indeed, according to Fitch’s Country Risk Ratings, there has not been a single positive change in Europe in the past twelve months.
In addition to the above, perhaps the single greatest risk facing the world order is China. In recent years, the West has attempted to alleviate their economic dependence on China by moving manufacturing sites to other locations, excluding Chinese companies from strategically important industries such as 4G and microchip manufacturing, and strengthening ties with other regional players. In return, China has tightened its grip on Hong Kong and increased the frequency and size of its military exercises in the South China Sea.
Furthermore, in October 2022, President Xi stated, ‘we insist on striving for the prospect of peaceful reunification with the greatest sincerity and best efforts, but we will never promise to give up the use of force, and reserve the option to take all necessary measures.
This increasingly aggressive rhetoric has left foreign investors in China, Taiwan, Hong Kong and other regional countries even more uncertain. Gallagher’s PRI team has noticed this sentiment. Enquiries in the region are up by approximately 200% this year, whilst pricing for expropriation insurance - where available - has increased by up to 300%.
Despite an uncertain risk environment and a difficult month of reinsurance renewals, the SCPR insurance market remains resilient. Capacity stands at near record levels, with new entrants to the market and several insurers increasing their line sizes. However, appetite for certain countries and specific structures, such as multi-country policies, has been affected and we continue to monitor the fall-out from the war in Ukraine.
At this stage, few claims have crystallised but the market’s exposure to both countries remains significant. Moreover, there have not been many notable wording changes, but there has been a more concerted effort from the market to include the Five Great Powers Exclusion, and specific Russia Exclusions are becoming more commonplace. Nevertheless, the SCPR insurance market remains robust and committed to supporting new and existing clients.
New Security Consulting Capabilities
In August 2022, Gallagher Specialty acquired AnotherDay, a UK-based risk management consultancy, specialising in security threats.
Together, our teams are able to assist clients across the entire political and security risks spectrum; by combining intelligence, risk consulting, insurance placement and crisis response.
Emerging Market Review
This section, and the commentary on specific countries which follows, has been compiled in association with Fitch Solutions.
Insurance Market Changes
Insurance Capacity Update
The following market capacity data has been compiled by Gallagher Specialty from information provided by each insurer to summarise the recent changes in the Structured Credit and Political Risk insurance market.
Capacity is broken down between each insurer (whether Lloyd’s syndicate or insurance company), showing their maximum line size and policy tenor, as well as the category of insurance (see Product Glossary).
All data is correct as of January 2023, and where an insurer has a Lloyd’s and company market platform, their data is not double-counted in the calculation of total capacity.
Insurance Market Moves
AEGIS
Emily Bone has joined the team as an Assistant Underwriter from QIC and Chris Trowbridge as a Credit Analyst from Chubb.
BRIT
Mick Mullen joins as an Analyst.
CREDENDO ECA
Bart Vancraenenbroeck joins as an Underwriter from Belgian DFI, BIO.
HISCOX
As of September 2022, Hiscox have pulled out of writing Political Risk Insurance to focus on their significant book of Political Violence and Terrorism business.
IQUW
Cindy Jiang has joined as an Underwriter from Talbot.
LIBERTY
Grace Douch and Millie Webb join the team as Assistant Underwriters from The Hartford and Chaucer respectively.
PERNIX
Emma Chell has joined as an Operations Analyst.
QBE
From BPL, Susannah Carpenter has joined QBE as a Senior Underwriter.
SCOR
Christian Hanna has joined as a Senior Underwriter from WRB.
SOVEREIGN
Having founded Sovereign 25 years ago, Price Lowenstein has decided to retire and Natalie Chiaramonte has replaced him as Division President.
SWISS RE
Daniel Gregory has joined from Zurich as Senior Underwriter and Alexandra Galloway has joined as Underwriter from their Australian office.
THE HARTFORD
Harry Davies has joined The Hartford as an Underwriter from Chubb.
The Team
Arthur J. Gallagher (UK) Limited is authorised and regulated by the Financial Conduct Authority. Registered Office: The Walbrook Building, 25 Walbrook, London EC4N 8AW. Registered in England and Wales. Company Number: 119013.