Credit & political risk to grow

Driven by an appreciation of the benefits of diversification and a search for healthier rates, many insurers have shown a growing commitment to the credit and political risk space in recent years, creating more choice for clients as a result. This has been widely supported by reinsurers.

That is the analysis of Sian Aspinall, managing director of BPL Global, a broker that specialises in this market, who says the sector holds a growing attraction for insurers as they seek to find lines of business removed from the intense pricing pressure faced by other parts of the market.

“It is a countercyclical market for them, not driven by the same forces that inform rates in other lines of business such as large catastrophe losses,” Aspinall said.

“That is not to say rates are not under pressure, but certainly not to the same extent. It also offers diversification, something that is increasingly valued by insurers since Solvency II came into force.”

She said most reinsurers operate in the market on a quota share basis, following the requirements of cedants, which have changed their own offering since the financial crisis to offer a much more comprehensive suite of products. They have largely been supported by reinsurers in this but, she added, some reinsurers have also started to compete on a direct basis now.

“For us, it is a good thing, as it creates more choice for our clients, but I could imagine that greater competition and the impact on pricing doesn’t please everyone,” Aspinall said.

She added that the credit and political risk insurance market came of age in many ways after the financial crisis, when insurers paid claims quickly and illustrated the sector’s value to customers in a way that had not been seen before. This has led to more innovation and growth in the market.

“There is also scope for banks to obtain capital relief by using insurance, making it comparable to other hedging instruments,” she added.

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