The global political and economic climate has shifted and the impact has been felt at the same scale. The United States 2016 Presidential election was one of the more relevant political risks facing businesses given the emphasis on trade tensions with emerging economies. In addition, long standing partners of the United States have also come under fire.

The trade tensions alone tensions have resulted in economic costs as well – the IMF estimates that the global economy will be decrease by 0.5% (approximately USD $430 billion) by 2020 if various tariffs remain intact. Tariffs and other sanctions have knock on effects that impact companies who are exposed to the risk of doing business in international contexts.

Global political risk consultancies have noted increases in geopolitical risk in emerging markets as a result of these changing conditions. For example, the continuation of the Maduro presidency in Venezuela has reduced foreign direct investment and increased their risk profile to very high. This puts greater pressure on government-backed insurers, but also could present opportunity for private insurers looking to capitalize on opportunity. Geopolitical uncertainty has stoked demand in the market for political risk insurance towards $10 billion in 2018, compared to $8.1 billion in 2015. The private market thus has an opportunity to fill a growing need on an industry that typically has a cap on capacity.

The private sector, however, may have the appetite to handle additional opportunity. The willingness to absorb exposure at a market-wide level stands at $41.1 billion. Maximum lines for non-payment private obligor risks and public obligor risks have risen 30% to $2.4 billion and $3.0 billion for 2018, respectively. The increased level of risk will likely result in higher premiums for coverage but the opportunity for further coverage demand to be supplied by private players has increased – and the willingness appears to be there. It could also be coming at a much needed time, as the current political climate does not appear to show signs of a quick improvement.

The author would like to thank Milomir Strbac, articling student, for his assistance in preparing this legal update.


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