The worldwide credit crunch in 2008-2009; the drastic and swift deterioration after regime changes in Egypt, Libya and the Middle East in general; the Greek debt crisis that impacted the whole Eurozone during the last 6 years; the Argentine Government taking over Repsol’s energy company in 2012; the Ukrainian war; the fall in oil prices that adversely impacts oil producing countries; the rise of terrorism and social unrest; the cancellation of the French Mistral vessels delivery to Russia… These examples of political risks can have a huge impact on corporate balance sheets especially for companies conducting business in the global marketplace.
There is a solution that offers protection against these financial losses, the Political Risk Insurance market. It offers two kinds of comprehensive products for mid term and long term risks.
– One, known as Trade Credit Insurance, includes non-payment, manufacturing risk, unfair calling of the bonds… This tailor-made policy protects the insured’s exposure on state-owned debtors as well as on private debtors. It provides a wide scope of cover because it considers every reason why the customer may become unable to pay.
– The other cover is related to confiscation or expropriation of investments or assets due to war or violence.
Even, if this is still considered as a niche product, Political Risks insurance is coming into vogue and offers the aggregate capacity of more than 30 insurers nowadays !
To get peace of mind and take advantage of securitization while expanding your business abroad, we recommend not to wait for the incidents to happen but to drive a global and portfolio-based strategy with a proactive approach. A rearview mirror analysis does not fit in this kind of risks assessment. Just because a company’s experience was good in the past, does not mean that political stability and debtors’ good payment performance will continue. In a situation where a specific country risk deteriorates quickly, insurers that already have political risk and non-payment policies in place will honour them but will be very reluctant to offer cover for any new business… Therefore, adopting a portfolio approach which includes the so called « good » risks with the bad ones helps to build a close partnership with the insurance market, and get the right support when needed.