Political risk and trade credit (re)insurance in high demand: Axco report
Axco Insurance Information Services (Axco) has published an overview of the political risk insurance (PRI) market and forecasts potential reforms and developments in global territories.
The report summarises the changes in demand for political risk and trade credit insurance and also highlights that due to its specialty nature, capital is often difficult to source, making it an attractive option for reinsurers.
In terms of PRI providers, the report suggests that the market has become increasingly dynamic in recent years with the growth in the number of insurers from approximately 30 in 2010 to more than 60 in 2018. The private market capacity in London alone is currently estimated at USD 3.25 billion for project and trade risks.
Jolle Wever, Managing Director at Axco, commented: “As the market has expanded following the global financial crisis, so has the PRI risk environment. Businesses now face myriad threats in both developed and emerging economies. As a result of these trends, we believe the PRI and related reinsurance markets will mature further in the future.”
The report identifies increased demand for PRI coverage over the past 30 years with the rise of international trade coupled with the rise of instability and accumulation of risks in emerging and advanced markets. In addition to export credit-related political risk, new types of peril and classifications are now included under the same umbrella of PRI coverage, such as contract frustration, credit risk, political risk and financial guarantees.
While the report details the substantial increases in line sizes and capacity of political risk and trade credit insurance, risks related to trade credit are less profitable. Hence, market conditions for commercial trade credit risks are tighter than for government risks.
“Reinsurance remains an attractive option due to the nature of PRI insurance and trade credit imposing high barriers to entry and reduces the capital available. However, the role of reinsurance is still limited and coverage is still required. Furthermore, collaboration within the public and private sectors could change how these risks are spread in international markets,” Wever added.
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