Maximum lines, contract durations, and the number of market players have all increased in the last three years
The credit and political risk insurance (CPRI) market globally has seen a substantial increase across all product lines over the past three years. Maximum lines for non-payment of private and public risks have risen by 30 percent to $2.4 billion and $3.0 billion respectively during that time.
Those were some of the conclusions contained in a report on overall market capacity released by BPL Global, a specialist CPRI broker. The report was based on market surveys and an analysis of BPL Global’s own portfolio.
CPRI capacity is increasing not only in terms of dollars but also in terms of contract durations. “Appetite for the CPRI class is on an upwards trajectory,” said Sian Aspinall, managing director of BPL Global. “The market is recognizing the need to match the natural return on investment for areas such as project finance and is adapting its capability accordingly. For the right risk profiles, infrastructure investments can be accommodated for up to 25 years.”
BPL Global’s portfolio can be considered reflective of the market as a whole, according to Aspinall. That analysis shows the volumes of exposure the market is willing to absorb: in Africa ($7.75 billion), the Middle East ($6.45 billion), and Latin America ($5.46 billion). Total exposure in BPL Global’s portfolio stands at $41.1 billion.
“Analysis of our own portfolio at BPL Global evidences the sheer volumes of exposure the market is willing and able to absorb,” said Aspinall. “We have seen increasing appetite amongst insurers to cover Latin American risks.”
Africa represents BPL Global’s largest regional exposure, as it has for a few years, currently accounting for 18.8 percent of its portfolio (not including multi-country programs which also include African exposures). “This demonstrates that there is a prevailing appetite among insurers for well-structured transactions in economically challenged markets with often difficult political environments,” said Aspinall.
BPL Global’s total exposure in Europe stands at $3.65 billion, reflecting increasing coverage for project finance and non-trade business in OECD countries. The BPL report highlights that there is significant capacity for those two lines of business. For non-trade credit business, the majority of total capacity, $1.5 billion, is available for policies with durations of up to seven years, while a volume of $700 million remains for risks with durations of 10 years. The jump in capacity for non-trade related credit insurance is notable because it was an area previously constrained by Lloyd’s regulatory requirements. The non-trade coverage levels have seen increases for transactions in OECD countries.
The jump in market capacity for non-trade risks provides “both depth in monetary amounts and increasing breadth in terms of the number of different insurance carriers participating in that segment,” said Aspinall. “Both are good indicators of increasing market strength. Growth in these areas has been primarily driven by the market responding well to client demand for partnership with insurers across a wider range of their portfolios and insurers bringing in dedicated expertise to serve the complex, specialist, and long-term nature of these business lines. This rate of adaptation is an encouraging sign for future market development and continued relevance as clients’ needs change over time.”
In the ten years ending in 2017, the market as a whole experienced 438 claims made by banks and financial institutions, with 422 paid in full for a total pay-out value of $2.57 billion. Since its establishment in 1983, BPL Global has settled over 440 CPRI claims worth in excess of $2.4 billion and arising from losses occurring in over 80 countries. A large bulk of those relates to non-payment and political violence-related claims, but the company has also handled claims for non-delivery, forced abandonment, expropriation, unfair calling of contractual bonds, and pre- and post-shipment policies.
The global financial crisis which began ten years ago saw a spike in the frequency of non-payment claims, particularly from banks and financial institutions. “Fortunately, the insurance market was able to respond effectively to this increased claims activity, both in terms of its service levels and the values of compensation collected,” said Aspinall.
In the decade since, BPL Global dealt with around a third of all bank-related claims arising in the CPRI market, across corporate lending, pre-export finance and trade finance-based policies, amounting to $822 million. “Of this, only one out of the 146 claims we handled was compromised,” said Aspinall.
BPL Global’s data on the number and amounts of claims paid by country show a degree of diversity across the countries in which claims have arisen, “demonstrating,” according to Aspinall, “the value of the CPRI product in being able to respond to losses occurring in a vast array of political and economic climates and consistently securing the best outcome, a fully paid claim for the insured.”
Ukraine tops the company’s country lists for both claims frequency and value. The bulk of the Ukraine claims emerged over the last ten years as a result of repercussions from the global financial crisis and the ongoing conflict in Crimea, which was annexed by Russia in 2014. The country has seen claims arising across nearly all lines of products, Aspinall noted.
Russia, Indonesia, Brazil, and Venezuela round out the top five countries on BPL Global’s list by amounts paid per country. Ukraine, Brazil, Russia, India, and Iran were the top five in terms of the number of claims by country as of January 2018 and since the company’s founding.
“The data supports the market’s responsiveness in meeting its responsibilities throughout the challenging economic climate of the global financial crisis and beyond,” said Aspinall. The largest values of claims handled by BPL Global have been on contracts covering Ukraine ($509 billion), Russia ($195 billion), and Brazil ($187 billion).
“The value of insurance is only demonstrated at the point of claim,” said Aspinall, “and the market as a whole has made great strides to provide collated data illustrating this, helping to validate the purchase of the product, particularly when used for capital relief by banks and financial institutions.”
This year marks 35 years for BPL Global. “CPRI was in its infancy when we were founded in 1983,” said Aspinall, “and the market today is almost unrecognizable in comparison.”