Green shoots in PVT market as carriers battle with Ukraine losses

The political violence and terrorism (PVT) market remains tough for buyers following the war in Ukraine, but it is not all gloom and doom with some signs of innovation, BPL Global’s Zoe Towndrow told delegates at our latest seminar.

Towndrow, who is practice lead for political violence at the specialist broker, explained that BPL Global has managed to get some wins for clients, not least through the constructive total loss (CTL) coverage option it has developed.

“The market is tough but there are green shoots and it is not all doom and gloom. We do get, for example, CTL written by a range of underwriters when it is suitable. Yes, in a hard market it becomes sub-limited but I firmly believe that you should buy the widest cover even if you have a sub-limit because it sets a precedent for the cover you want and need,” she said at the event, supported by UK risk and insurance management association Airmic with BPL Global as headline partner.

The CTL option has been developed by BPL Global to help ensure political violence cover can better respond to war. In essence it ensures that companies are indemnified if it is not possible to get into a country and start to repair and rebuild damaged property.

“The industry standard Beazley political violence wording does what it does very well and does what it says on the tin. However, like other property policies it assumes that following property damage, you can gain access and start repairs as you can following a fire, or even a terrorist loss. But you cannot always do that in a war, so we came up with a cover based on the well-established insurance notion of constructive total loss” said Towndrow.

“The idea is not that different from a blocking and trapping loss: the vessel may not be lost in the sense it is at the bottom of the sea, but if you cannot access it and use it because it is trapped in a war zone, it becomes a constructive total loss in the passage of time. The idea behind CTL is similar. If you cannot gain access to begin repairs due to a continuing state of war in the region then with the passage of time the property becomes a total loss. It’s an improvement in dealing with war risks, if not a panacea,” she explained.

Charlie Grace, assistant director at BPL Global, said the CTL option is becoming widely accepted by the political violence market. “This is obviously very encouraging,” he added at the event, also partnered by Inigo Insurance, Signature and The Hartford.

Towndrow stressed that brokers have to keep pushing and agitating to push the boundaries of PVT insurance despite the current market conditions. “This is still quite a young market, where further product development is needed, so harder market conditions must not stop us from innovating and trying to push new ideas,” she said.

Buyers of PVT cover are seeing rates and retentions rise alongside more restrictive wordings and higher retentions as a result of the war in Ukraine and heavy losses for the market.

Underwriters taking part at the event were quick to stress that they are under pressure following unprecedented losses and the first war on European soil for several decades.

Guy Burrows, senior underwriter of terrorism and Political Violence at Inigo, said the Ukraine war has had a big impact on the whole PVT market.

“When we have had previous large-scale events, like in Thailand during 2010 and 2011 or South Africa or Chile, as a market we have been able to reassess the rating of policies and react with quite large but localised rate increases for exposed assets, with just a bit of bleed into the global portfolio. But as we are not able to assess the damage in Ukraine we are not able to carry out that localised reaction. So it is the first time really that we have seen such a broad scale, cross-portfolio remediation as opposed to a localised reaction,” he said.

“The war has shaken up this market but whether that is a continuing trend we will wait and see,” he added.

Joe Pearman, senior political violence underwriter at The Hartford, said Ukraine is the first time the war peril has tested his market in this fashion. “So I think the impact on the market will be fluid for the next 12 to 24 months,” he said.

Pearman explained that the hard market reaction goes beyond price rises. “There are obvious reasons for the rate increases because of reinsurance costs that we bear, but there are many other elements that are coming under consideration,” he said.

Fellow underwriter Borrows said PVT reinsurance cost a lot more at 1 January renewals, where there was also focus on tighter terms and conditions. In addition, Indigo had to keep more risk.

Pearman said his company faced similarly difficult reinsurance renewals at the turn of the year. But he stressed there remains a “huge” amount of capacity out there to meet buyer demand at primary level.

Burrows agreed: “As a whole I think we can meet the demand of most client requests. We have the knowledge in the market and the experience to deliver. And there is a desire to get more people into the business.”

*BPL Global is an independent broker specialising exclusively in credit and political risk insurance (CPRI) and political violence and terrorism (PVT) cover for multinational corporations and cedants. BPL Global says its greatest strength is the expertise and experience of its people, all of whom are committed to putting clients’ needs first. In 2023 BPL Global celebrates its 40th anniversary.