Stabilizing financial markets have helped buyers of trade credit insurance, as political risk underwriters are pulling back slightly on rates they hiked last year during the global financial crisis, insurers and brokers say.
Rates for political risk insurance covering investors against expropriation and civil unrest also are dropping somewhat, after holding steady in 2009. Meanwhile, rates for sovereign contract frustration coverage have stabilized after sharp increases last year, experts say.
Africa is the most politically unstable region, according to Chicago-based Aon Corporation.Â Experts say other nations with the greatest political risks are Argentina, Bolivia, China, Congo, Ecuador, Ghana, Indonesia, Kazakhstan, Russia, Turkey, Ukraine, Uzbekistan, Venezuela, Yemen and Zimbabwe.
In addition, coverage improvements have been implemented and more are planned by the political risk insurance facilities operated by the U.S. government and World Bank.
Fallout from the financial crisis smothered the political risk marketplace last year, as banking liquidity problems led to insured losses that experts estimated at $1.3 billion to $1.75 billion, or years of premium volume.
â€œThe credit crisis was really the most significant event we have ever seen or hope to ever see in our careers,â€â€ said Keith Dunford, vp-worldwide underwriting manager for political risk at the Chubb Specialty unit of Chubb Corp. of Warren, N.J. However, â€œeverything has moderated now.â€â€
Rates for credit-related coverage soared from 50% to 300% last year, depending on the particular risk and the country involved, executives say.
The Kazakhstan governmentâ€™s decision to allow failure of the nationâ€™s largest bank, now called BTA Bank JSC, contributed significantly to hardening of the structured credit market last year, said Matthew Woollam, the London-based head of trade credit political risks at Liberty Mutual Insurance Europe Ltd., a unit of Boston-based Liberty Mutual Group Inc. Financial institutions are the main buyers of the coverage for borrower or counterparty payment defaults.
The Kazakhstan governmentâ€™s â€œunexpected behaviorâ€ compelled insurers to tighten their banking risk underwriting â€œin many countries,â€. Woollam said.
â€œWe reviewed our portfolio and changed our strategy to reflect weâ€™re still in a weak economic environment,â€ said Navaid Farooq, a London-based senior underwriter for Catlin Group Ltd.
â€œWe believeâ€ the financial crisis is ending, so â€œâ€œmost of the problems, hopefully, have been reported.â€The countries with the greatest credit risk include Kazakhstan as well as Bahrain, Latvia, Turkey and Ukraine, experts say.