Political risk insurance market pulls back from eastern European exposures

Russia’s invasion of Ukraine has roiled political risk insurance markets, with insurers reviewing capacity they offer and policyholders checking their coverages and exposures with brokers. “The political violence market has certainly reacted,” said Björn Reusswig, head of global political violence and hostile environment solutions for Allianz Global Corporate & Specialty (AGCS). Political risk insurance covers policyholders against the risk of loss from expropriation of assets by a foreign government, damage due to political violence and sovereign debt default, among other things. As first reported in our sister publication Business Insurance, capacity for exposures in Ukraine is nearly impossible to find, said Reusswig. Risks in Belarus and Russia are difficult to cover, and capacity for Latvia, Estonia, Lithuania, Poland, Moldova, Georgia and Kazakhstan is getting tighter, he added. Credit and political risk insurers are reviewing their exposures in Ukraine, Russia and Belarus, as well as all the surrounding regions, said Neil Duchesne, managing director in the credit specialties practice of Marsh Specialty. Insurers will seek to understand the implications of the sanctions imposed on Russia and assess the impact of the changed risk environment on existing exposures, he said. Michel Leonard, vice-president and head of the economics and analytics department at the Insurance Information Institute in New York, said it is “highly unlikely” that insurers will consider issuing political risk or trade credit coverage across eastern Europe, especially for the Baltic states, Poland, Romania, Hungary, the Czech Republic and Slovakia. The institute said political risk insurers issued $19bn of new coverage globally in 2021. Some $2bn went to cover risks in Europe and $1.6bn to cover risks in Russia, based on data from the Berne Union, the trade association representing credit and political risk insurers. While most underwriters would be reluctant to write anything in Russia or the Ukraine, Poland, as a NATO country, could represent an acceptable risk, said Laura Burns, senior vice-president, US political risk product leader for WTW. Burns said she is in a lot of contact with risk managers. She is speaking with existing policyholders to determine, for instance, if a notice of circumstance that could give rise to a loss should be filed with an insurer. She is also dealing with enquiries from prospective clients at companies operating in countries such as Poland. “We are getting calls from clients with respect to forced abandonment claims already,” Burns said. These claims result from a policyholder’s need to abandon an operation or shut it down, even if they have not suffered property damage. Political risk policies are typically multiyear and can go out as far as 20 years, added Burns. Marsh’s Duchesne said claims arising out of the conflict could include physical damage losses from political violence, as well as forced abandonment of assets and forced divestiture of Russian shareholdings as the crisis deepens. Leonard noted that in addition to policy waiting periods, or time deductibles, of seven to 30 days, it can take weeks or months to assess damages and the conflict needs to cease or de-escalate in order for parties to be able to quantify losses on the ground. One possible threat to businesses is the potential seizure of assets by Russian officials in retaliation for sanctions. Other exposures include trade disruptions and cyber threats, sources said. Ukraine is a leading exporter of wheat, corn and sunflower oil and seeds, especially to north Africa, west Africa and the Middle East, said AGCS’s Reusswig. “Some commodities can be quite politically sensitive,” said Duchesne, adding that a price hike on wheat was one of the triggers of civil unrest in north Africa that ultimately led to the Arab Spring in 2011. Meanwhile, Moody’s noted in a report in March that the military conflict in Ukraine is raising the risk of worldwide cyberattacks against critical infrastructure assets, along with a possible further escalation and increased frequency of cyberattacks against private companies and other organisations. For further news from Business Insurance, please click here.

Political risk insurance market pulls back from eastern European exposures

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