Credit and political risk transfer capacity at all-time high: WTW

Capacity for credit and political risk insurance (CPRI) is at a record high after spiking over the last year, according to WTW. It says new entrants to the market, as well as substantial increases in line sizes, have driven the growth in capacity available to CPRI buyers. Publishing its latest CPRI survey and market update, WTW finds transactional credit insurance for non-trades has recorded the strongest increase in total notional capacity per transaction over the last year, up 37% for 2023 to $2.26bn. Transactional credit capacity per transaction related to trade increased by 17% to $3.04bn. WTW’s survey records a 20% increase in capacity for contract frustration risks to $4.05bn, replacing political risk as the largest CPRI business line. Political risk has recorded a 15% increase in capacity to $3.94bn for 2023. Drawn from a survey of 58 Lloyd’s and company market insurers in January 2023, WTW says record high levels of capacity for CPRI risks come at a time of global economic uncertainty and geopolitical tensions. “Notional maximum capacity has increased across the board, demonstrating resilience and depth in the CPRI market,” it says. “The fact that we are seeing a continued and steady increase in capacity within the CPRI market denotes its stability as well as the market’s confidence in this sector,” said Emma Coffin, head of broking, global financial solutions at WTW. “Each of the three main CPRI perils – contract frustration, transactional credit and political risk – have experienced growth over the past two decades through various market cycles, across the Covid-19 pandemic and the resulting lockdowns,” she added. The survey reveals the US, UK and Nigeria are the top three countries by exposure for 32 CPRI insurers. Forty-nine CPRI insurers listed their top three industry exposures as financial institutions, sovereign and oil and gas. “This survey also highlights a marked rise in renewables and ESG, with a positive shift in the number of markets able to support clients with challenging financing structures. We foresee all these positive trends continuing in 2023,” Coffin said. The survey tracks an increase in capacity across all tenors but higher growth in contract frustration where notional capacity for 15-year tenors was up 37% to $2.5bn. Over the last year, WTW’s own broking platform recorded 26% more new enquiries globally. It also reveals that requests for credit risk insurance accounted for 60% of enquiries and now outpaces new contract frustration requests. The UK and US are WTW’s top two country exposures by policies placed. It says this demonstrates a shift in demand towards threats in developed countries that will continue in 2023. Nigeria, which appears in the overall insurance market’s top three, fell outside of WTW’s top ten exposure countries. WTW’s CPRI claims totalled $61.9m in 2022, down 48% from $118.6m in 2021. “We believe this reduction has been the result of a more stable credit portfolio, with higher-rated and structured credits performing well,” it says. It adds that sovereign losses have played a major part in recent claims activity, with more likely to come in 2023. In particular, WTW says 65% of losses were generated by sovereign-related non-payment, largely from ongoing Zambian contract frustration settlements but also some claims from sanctions following the Russia Ukraine war. “There may be more to come as we work through political risk cases in Russia, particularly given the ongoing currency restrictions,” warns WTW. Trade credit claims have risen as Covid-19 government support packages have ended, WTW says, with its own data recording $22m in transactional credit losses last year. “Loss activity is likely to increase, with rising inflation, energy costs and interest rates putting pressure on companies globally,” it says, with claims also likely following the suspension of foreign debt payments in Ghana.

Credit and political risk transfer capacity at all-time high: WTW

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