POLITICAL RISKS INSURANCE (PRI) Report and Market Update

Transcription

1 POLITICAL RISKS INSURANCE (PRI) Report and Market Update uary 2011 not only do emerging markets remain exposed to political risk but investors now live in a world that is increasingly unpredictable in both an economic and political sense Financial Times 28 uary 2011 Gallagher London is a trading name of Arthur J. Gallagher (UK) Limited Registered in England No Authorised and regulated by the Financial Services Authority

2 uary 2011 Contents Market Report uary Commercial Market Overview uary Available Market Capacity uary Total Capacity Available by Tenor uary Available Market Capacity Comparison 10 Trade Credit Insurance uary Emerging Markets Country Risk Ratings 13 Arthur J. Gallagher & Co 16 Gallagher London Political, Project & Credit Risks Contact Details 17 The information contained in this PRI Report and Market Update has been compiled by Gallagher London from information provided by each insurer. The figures expressed reflect the theoretical maximum possible lines available which are dependent upon many underwriting factors including the nature of the risk, the country of risk and available country capacity at the time which may reduce the amount of capacity actually available and is subject to change without notice. PRI Report and Market Update does not purport to be comprehensive or to give legal advice. While every effort has been made to ensure accuracy, Gallagher London cannot be held liable for any errors, omissions or inaccuracies contained within the document. Readers should not act upon (or refrain from acting upon) information in this document without first taking further specialist or professional advice. Page 2

3 uary 2011 Market Report uary 2011 The Gallagher London PRI Market Update for uary 2011 reflects the changes in line structure and tenor available from commercial PRI insurers during the second half of 2010 and for the New Year. Any such changes tend to reflect reinsurance renewals and business planning that have been completed in the intervening period as well as the advent of new entrants who have successfully implemented new reinsurance programmes and opened for business. The confidence of insurers continues to grow in the wake of the steady recovery from the global financial crisis evidenced by two insurers expanding their operations. Beazley are opening a new underwriting operation in New York which will write their full Political and Trade Risks offerings. In the y 2010 Market Report, we reported the establishment of Ironshore s New York underwriting operation. Ironshore has now established an European underwriting operation writing out of Ireland to complement their New York office. The overall changes since the last report in y 2010 are identified in the following charts and reflect: Ark: Tenors for CEN and CF have been reduced from 7 years to 5.5 years. Ark has withdrawn its CR capacity. Chaucer: Line size for CR has increased from USD 5m to USD 7.5m. CV Starr: Established a Company Market operation, under the carrier of Starr Insurance and Reinsurance Ltd, with lines of USD 40m for CEN and CF, tenors of up to 10 years and a line of USD 20m for CR with tenor of up to 5 years. CV Starr have increased their Lloyd s lines for CEN and CF to USD 50m, each with tenors remaining up to 7 years, and have increased their Lloyd s line for CR to USD 25m with tenor remaining at 5 years. Garant: Garant is the most recent entrant on Gallagher s approved market security list. They offer lines of EUR 20m for CEN and CF with tenors of up to 5 years. Kiln: Increased lines for CF and CR from USD 30m to USD 40m with tenors remaining up to 5 years. O Farrell: Increased lines for CEN and CF from USD 10m to USD 20m with tenors increasing to up to 5 years. Sovereign: Increased line for CF from USD 50m to USD 80m with tenor remaining at 15 years. Line for CEN amended from USD 100m to USD 80m to reflect actual utilisation of capacity. Consequently the overall market capacity for Project Risks has increased by USD 70m to USD 1,293m. Trade Risks Political has increased by USD 130m which is a positive indication of insurers returning confidence. Despite the withdrawal of Ark s CR capacity, Trade Risks Commercial capacity has increased to USD 768m due to Chaucer, CV Starr and Kiln increasing their respective CR lines. The figures expressed reflect only the theoretical maximum possible lines available which are dependent upon many underwriting factors including the nature of the risk, the country of risk Page 3

4 uary 2011 and available country capacity, but serve as a good indicator of commercial insurers support for these classes of business. Encouragingly, the overall market capacity for Trade Risks Political and Trade Risks Commercial are at the highest levels seen since the first Report and Market Update issued in September In this Report we have also included a year to year comparison of Country Risk Ratings from data provided by IHS Global Insight. We also include a brief review of the traditional multi-debtor credit insurance market. Page 4

5 uary 2011 Commercial Market Overview uary 2011 (lights indicate changes since last report) Insurer: Company Markets Project Risks (CEN) Trade Risks Political (CF) Trade Risks Commercial (CR) ACE European Group Ltd* Total max per risk (USD) Max Tenor (years) Total max per risk (USD) Max Tenor (years) Total max per risk (USD) Max Tenor (years) Ratings 80,000, ,000, ,000,000 5 AA- [S&P] Aspen* 70,000, ,000, ,000, A [S&P] Atradius 70,000, ,000, ,000,000 5 A- [S&P] Axis 50,000, ,000, ,000,000 7 A+ [S&P] Chartis 120,000, ,000, ,000,000 3 A+ [S&P] Coface 70,000, ,000, ,000,000 7 AA- [Fitch] Houston Casualty 30,000, ,000, ,000,000 5 AA [S&P] Garant** 25,000, ,000, Unrated Ironshore ,000, ,000,000 5 A- [A.M. Best] Liberty Mutual Insurance Europe Ltd 30,000, ,000, ,000,000 5 A [A.M. Best] QBE* 50,000, ,000, ,000,000 7 A+ [S&P] Sovereign 80,000, ,000, AA- [S&P] CV Starr* 40,000, ,000, ,000,000 5 A [A.M. Best] Zurich 150,000, ,000, ,000,000 7 AA- [S&P] Total: Company Markets Total: y ,000, % 865,000, % 550,000, % 795,000, ,000, ,000,000 Notes: * can be written via either their company or Lloyd s syndicate ** Garant is owned 83% by ONDD (Rated AA+ by Standard & Poor s) and 17% by Ingosstrakh (Rated BBB- by Standard & Poor s). Lines of EUR 20m for CEN and CF available, but for the purposes of this Report have been converted to USD. Page 5

6 uary 2011 Insurer: Lloyd s Markets [All Lloyd s Markets rated A+ by S&P] Project Risks (CEN) Total max per risk (USD) Max Tenor (years) Trade Risks Political (CF) Total max per risk (USD) Max Tenor (years) Trade Risks Commercial (CR) Total max per risk (USD) Max Tenor (years) ACE Global Markets* Lloyd s Syn 2488 Amlin Lloyd s Syn 2001 Ark Lloyd s Syn 4020 Ascot Lloyd s Syn 1414 Aspen* Lloyd s Syn 4711 Beazley Lloyd s Syn 623 Catlin Lloyd s Syn 2003 Chaucer Lloyd s Syn 1084 Hardy*** Lloyd s Syn 382 Hiscox Lloyd s Syn 33 Kiln Lloyd s Syn 510 Liberty Syn Mgmt Lloyd s Syn 4472 O Farrell Lloyd s Syn 1036 Marketform Lloyd s Syn 2468 MAP Lloyd s Syn ,000, ,000, ,000, ,500, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,500, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, , ,000, ,000, ,000, ,000, Novae Lloyd s Syn 2007 Notes: 20,000, ,000, ,000,000 5 * can be written via either their company or Lloyd s syndicate ***Correct as at y Up to date information not provided. Page 6

7 uary 2011 Insurer: Lloyd s Markets (continued) Project Risks (CEN) Trade Risks Political (CF) Trade Risks Commercial (CR) Total max per risk Max Tenor (years) Total max per risk Max Tenor (years) Total max per risk Max Tenor (years) Starr PFR Consortium* Lloyd s Syn 1919/1458 Pembroke Lloyd s Syn 4000 QBE* Lloyd s Syn 1886 Talbot Lloyd s Syn ,000, ,000, ,000, ,000, ,000, ,500, ,000, ,000, ,000, ,000, ,000, ,000,000 5 Total: Lloyd s Markets 632,500, % 560,000, % 353,000, % Total: y ,500, ,000, ,500,000 Notes: * can be written via either their company or Lloyd s syndicate Page 7

8 uary 2011 Available Market Capacity uary 2011 (Total possible maximum USD per risk) Project Risks (CEN) Trade Risks Political (CF) Trade Risks Commercial (CR) Company 865,000, ,000, ,000,000 Lloyd s 632,500, ,000, ,000,000 TOTAL 1,292,500, % 1,240,000, % 768,000, % Total: 1,222,500,000 1,110,000, ,500,000 y 2010 * Totals do not double count the Company and Lloyd s lines of ACE, Aspen, QBE and Starr which can be written via either their Company or Lloyd s syndicate. Available Market Capacity uary 2011 (Total possible maximum USD million per risk) Capacity Company Lloyd's Project Risks (CEN) Trade Risks Political (CF) Trade Risks Commercial (Credit) Risk Type Page 8

9 uary 2011 Total Capacity Available by Tenor uary 2011 (Total possible maximum USD per risk) Max tenor (Years) Project Risks (CEN) Trade Risks Political (CF) Trade Risks Commercial (CR) ,000, ,000, ,000, ,000, * 840,000, ,000, ,000,000 5** 1,260,000,000 1,210,000, ,500, ,292,500,000 1,240,000, ,000,000 * Aspen s USD 70m can be extended to 7.75 years across all risks ** Ark s USD 20m can be extended to 5.5 years for Project Risks (CEN) and Trade Risks Political (CF) Total Capacity Available by Tenor uary 2011 (Total possible maximum USD million per risk) 1,400 1,200 1,293 1,240 1,260 1,210 Project Risks (CEN) Trade Risks Political (CF) Trade Risks Commercial (Credit) Capacity 1, Tenor Available (Years) Page 9

10 uary 2011 Available Market Capacity Comparison (Total possible maximum USD million per risk) September 2001 to uary 2011 Project Risks (CEN) Sept Company Lloyd s TOTAL 1, ,083 1,228 1,238 1,350 1,348 1,223 1,293 Trade Risks Political (CF) Sept Company Lloyd's TOTAL ,052 1,041 1,146 1,157 1,110 1,240 Trade Risks Commercial (CR) Sept Company Lloyd's TOTAL Page 10

11 uary 2011 Trade Credit Insurance uary 2011 During 2010 the Credit Insurance Market recovered from the credit crunch and the big three monoline insurers, Atradius, Coface and Euler have to an extent recovered their risk appetite. The need to recover profitability means that they have also lowered rates in order to capture more market share and premium income. This is good in the short term for the insured, but it does present some cause for concern for the future, because of the potential imbalance between premium income and risk carried. If insufficient reserves are built up there is every chance that there will be a similar withdrawal of cover to that seen in if further economic problems are encountered. One of the benefits of the crunch has been that insurers are decidedly better informed about the risks that they write, information is more detailed, is more thoroughly analysed, and more up-todate. From the insured s point of view, the growing emphasis has been on ensuring certainty of cover which these three insurers have looked to support by providing extended notice periods before cancelling limits, or offering penalty structures that will react to reduced risk appetite levels. This desire for continuity of cover has increased the attractiveness of the excess of loss insurers whose traditional approach has been effectively to act as reinsurers of the insured s credit management programmes. As a consequence they maintained a more level headed approach during the credit crunch. The significance of the non-cancellable nature of the limits is that the cover could not be withdrawn. The underlying philosophy of understanding that the insured knows its customer means that even where the renewal of a policy allowed for cancellation, cover was more often maintained than not. This behaviour has been recognised by insureds that may not have previously considered an excess of loss facility. By making changes to their credit management programmes and improving their own customer information, insureds are able to take advantage of the quality of cover these programmes provide. Both established and new insurers have been attracted into this market over the past year. This has meant the arrival of most welcome additional capacity, including: Markel This multiline insurer recruited the well respected members of the ACE Trade Credit team and started writing trade credit and political risk business in April Trade credit excess of loss policies are its staple product both on a multi-buyer or single debtor basis. Latin American Underwriters - started writing business on behalf of Allied World Assurance Company in the last quarter of it offers a variety of products for both the importer and exporter in Latin America and the Caribbean. These include non-payment coverage for shortterm and medium-term exports to both private and public sector buyers, non-payment and nonperformance coverage in respect of advance payments, and pre-financings of structured commodity trade and trade finance programs. It also offers unfair calling of bond cover. Page 11

12 uary 2011 Equinox Global - This Company was established in October 2010 and is writing multi-debtor business on both excess of loss and ground-up basis on behalf of the Beazley and Pembroke syndicates and company market insurers Aspen and Liberty. Equinox offers excess of loss policies with non-cancellable limits, whole turnover policies where limits may be reviewed or cancelled only if externally produced buyer credit ratings deteriorate beyond an agreed benchmark, and key account policies either with cancellable or non-cancellable limits. Ironshore - obtained a licence in Ireland at the beginning of 2011 that has given it the ability to write trade credit and political risk business in Europe. Amongst its products is trade credit on single debtor or multi-debtor (up to 12 buyers) basis, it can offer lines of USD 20m per obligor and tenors of up to five years. Finally the support that insurers and their products can offer trade finance programmes is once again being recognised by major corporations, SME s, insurers, and finance houses as well as by the banks whose capitalisation requirements have been impacted by the credit crunch. This has in turn restricted their ability to lend to companies. The ability to improve the quality of the risk through the appropriately structured credit insurance programme results in higher levels of eligible receivables, lower collateralisation, and improved lending rates. This is expected to be an area of good growth in the coming year. Page 12

13 uary 2011 Emerging Markets Country Risk Ratings The following pages analyse the Country Risk Ratings, compiled by IHS Global Insight, of various Emerging Markets. We compare the Ratings and the Political Risk Ratings as at the time of publication of this Market Report, and as at 1 uary These countries have been selected from the International Monetary Fund s World Economic Outlook for Emerging and Developing Economies, April The Risk Ratings have the following meaning: Risk Rating Risk Description Insignificant Negligible Low Moderate Medium Significant Extreme Ratings take into account six components: - Political, Economic, Legal, Tax, Operational and Security. These ratings are principally measuring stability. Political Risk Ratings analyse four factors:- - Institutional performance - Representation of the population and organised interests - Internal political consensus - External political consensus Sub-Sahara Africa Burkina Faso Côte d'ivoire Democratic Republic of Congo at at Political Risk at Political Risk at Ghana 2.78 Medium 2.78 Medium 2.75 Medium 2.75 Medium Kenya 3.35 Significant 3.29 Significant Liberia Nigeria Sierra Leone South Africa 2.31 Moderate 2.22 Moderate 2.50 Moderate 2.25 Moderate Tanzania 3.30 Significant 3.36 Significant 3.00 Significant 3.00 Significant Page 13

14 uary 2011 Asia Pacific at at Political Risk at Political Risk at Cambodia 3.11 Significant 3.13 Significant 2.75 Medium 3.00 Significant China 2.87 Medium 2.90 Medium 2.75 Medium 2.75 Medium India 2.73 Medium 2.73 Medium 2.50 Medium 2.75 Medium Indonesia 2.76 Medium 2.87 Medium 2.50 Medium 2.75 Medium Laos 3.26 Significant 3.33 Significant 3.25 Significant 3.25 Significant Papua New Guinea 3.29 Significant 3.29 Significant Pakistan Philippines Thailand 2.97 Medium 2.82 Medium Significant Vietnam 2.95 Medium 2.87 Medium 3.00 Significant 3.00 Significant Europe and CIS at at Political Risk at Political Risk at Belarus Czech Republic 1.94 Low 1.94 Low 1.75 Low 1.75 Low Greece 2.67 Medium 1.95 Low 2.75 Medium 1.75 Low Kazakhstan 3.07 Significant 3.01 Significant 3.25 Significant 3.25 Significant Kyrgyzstan Significant Poland 1.99 Low 2.06 Moderate 2.00 Moderate 2.00 Moderate Romania 2.47 Moderate 2.39 Moderate 2.25 Moderate 2.50 Medium Russia 3.01 Significant 2.88 Medium 2.75 Medium 2.75 Medium Slovakia 1.86 Low 1.92 Low 1.75 Low 2.00 Moderate Ukraine 3.20 Significant 3.13 Significant 3.25 Significant 3.25 Significant Page 14

15 uary 2011 Latin America and Caribbean at at Political Risk at Political Risk at Argentina 3.36 Significant 3.30 Significant Bolivia Brazil 2.66 Medium 2.63 Medium 2.50 Medium 2.50 Medium Colombia 2.96 Medium 3.05 Significant 3.25 Significant 3.25 Significant Dominican Republic 2.82 Medium 2.85 Medium 3.00 Significant 3.00 Significant Ecuador Guatemala 3.31 Significant 3.22 Significant Peru 2.89 Medium 2.86 Medium 3.25 Significant 3.25 Significant Nicaragua Venezuela Middle East and North Africa at at Political Risk at Political Risk at Algeria 3.08 Significant 2.95 Medium 3.25 Significant 3.00 Significant Bahrain 2.19 Moderate 2.03 Moderate 2.75 Medium 2.50 Medium Egypt 2.89 Medium 2.78 Medium 3.25 Significant 3.00 Significant Kuwait 2.51 Medium 2.20 Moderate 3.00 Significant 2.50 Medium Lebanon 3.19 Significant 3.48 Significant Libya 2.96 Medium 2.85 Medium 3.00 Significant 3.00 Significant Saudi Arabia 2.50 Medium 2.39 Moderate 2.75 Medium 2.75 Medium Tunisia 2.87 Medium 2.11 Moderate 3.25 Significant 2.25 Moderate United Arab Emirates 2.12 Moderate 1.77 Low 2.00 Moderate 1.50 Low Yemen Significant Page 15

16 uary 2011 Arthur J. Gallagher & Co Arthur J. Gallagher & Co. is the fourth largest insurance broker and risk management firm in the United States and the fifth largest in the world. Founded in 1927, Arthur J. Gallagher & Co. provides a full range of property, casualty and employee benefits products and services to clients of all sizes. Gallagher London Gallagher London is a trading name of Arthur J. Gallagher (UK) Limited which is authorised and regulated by the Financial Services Authority. Political, Project & Credit Risks Division The Political, Project & Credit Risks division comprises a well established team of highly experienced political risk insurance market practitioners which now incorporates the former FirstCity Trade and Political Risks team (since April 2010) as well as the former Rattner Mackenzie Credit Insurance division (since October 2009). With representation or correspondent relationships in all the major financial centres the Political, Project & Credit Risks team services a truly global client base. The combined resources offer the most comprehensive service that: provides access to specialist London and international insurers and reinsurers covers the full range of Political Risks, Trade Credit, Terrorism (including War and Political Violence) and Surety markets is dedicated to structuring innovative insurance solutions that go beyond transactional broking has the resources and relationships to negotiate competitive and appropriate terms maintains the highest standards of documentation management, accounting and claims collection As an integrated division of more than 20 market professionals, Gallagher London s product offering includes all aspects of: Political Risks Project Risks Credit Risks Risk to contracts Risks to project developers Private buyer insolvency risks Risks to overseas assets Risks to lenders Protracted default risks Risks to receivables Currency transfer risks Export or domestic credit risks Risks to revenues Political violence and war risks Counterparty bank default risks Page 16

17 uary 2011 Gallagher London Political, Project & Credit Risks Contact Details London New York Sao Paulo Kit Brownlees Gabe Mansky Tatiana Moura Managing Director Senior Vice President Commercial Director Direct: +44 (0) Direct: Direct: Political and Project Risks Mark Gubbins David Evans Executive Director Divisional Director Direct: +44 (0) Direct: +44 (0) Credit and Surety Rupert Murray Stephen Taylor Executive Director Divisional Director Direct: +44 (0) Direct: +44 (0) Political Violence, War and Terrorism Rupert Morgan (US) Ewan Wauchope (Int l) Divisional Director Divisional Director Direct: +44 (0) Direct: +44 (0) Page 17

18 uary 2011 Page 18