Macroeconomic pressures but structured credit and political risk insurance capacity grows, says Gallagher

Supply issues, inflation and tightening financial conditions, combined with heightened market volatility and increasingly sluggish Chinese growth, as well as turbulence from increasing political risk, are the main macroeconomic pressures on global growth, according to Gallagher.

But despite the increasingly uncertain risk environment, the broker notes in its latest Structured Credit And Political Risk Insurance Market Update that insurance market capacity has grown across project risks, political/sovereign trade risks, commercial trade risks and non-trade.

“Risk appetite has undoubtedly shifted in the face of the challenges, and particularly in response to Russia’s invasion of Ukraine. Global energy prices, for example, are certainly affecting appetite for risks in the sector in both importing and exporting economies, and across emerging markets and developed markets,” says Gallagher.

But it adds: “Encouragingly, overall the structured credit and political risk insurance market remains robust and committed to supporting clients in the face of global uncertainty in 2022 and beyond.”

Total market capacity

	Political risks	Trade risks commercial	Trade risks political	Non-trade
Lloyd’s ($m)	1,669	1,599	1,124	1,052
Company ($m)	2,730	2,657	2,274	1,686
Total July 2022	3,553	3,440	2,698	2,146
Total January 2022	3,523	3,410	2,698	2,121

Data accurate as at 1 July 2022, prior to Hiscox’s withdrawal from the product class
Source: Gallagher Specialty

According to Gallagher: “Rolling lockdowns in China, Russian-related supply issues and general labour shortages are causing significant issues in the supply chain, which have forced commodity prices to elevated levels, where they are expected to remain for some time (although possibly not at the record highs seen in H1 2022). Energy prices remain highly sensitive to further supply shocks in response to the Russia/Ukraine situation. These supply difficulties leave inflation riding high, well above central bank targets, and in some cases more than double or triple those targets.

It explains that financial markets remain very volatile as a result of sharp interest rate hikes and fears of a global recession, which have prompted a selloff in emerging market currencies as investors move to the safety of the major global currencies.

It also notes that the Chinese economy faces regulatory pressure in the technology sector, continued stress in its real estate market and economic disruption caused by lockdowns under the zero-Covid policy.

As a result of all this, Gallagher says that political risk and civil unrest is likely to increase. “In Asia, the increased threat of protests is contributing to a heightened risk environment. Political risk in sub-Saharan Africa, while impacted less by global trends, remains high, relative to international levels,” it says.

The broker says that Covid fatigue, the ever more severe cost-of-living crisis and slower growth are leading to increased popular dissatisfaction, and weighing on political stability. It also points to a raft of upcoming elections across emerging markets and developed markets, which could see policy shifts and/or deadlock, contributing to increased uncertainty in the political landscape throughout the world.