Political Risk a Hot Market for Lloyd’s Underwriters
By Robert O'Connor | |
A.M. Best Company, Inc. |
The political and trade credit risk market can be highly profitable to Lloyd's underwriters in turbulent times such as the present, but the risks can be high as well.
The risks that underwriters must consider are as immediate as the daily headlines: turmoil in the
"Over the economic and the insurance cycles, we would expect to make healthy margins out of this business, but we do get smacked occasionally by the odd crisis," said
"More than ever, I think political risk insurance is going to be absolutely critical to support businesses in this new challenging, exciting growth landscape," she said.
Lewers believes the unresolved issue of European debt is not a good sign for the growth of trade, which is the lifeblood of the political and trade credit risk insurance market. "It's hard to see that investment or trade will be particularly robust in terms of growing year on year," he said.
The forecast for foreign direct investment in 2011 is
Trade finance refers to the amount of capital that is needed to allow international trade to take place.
Bamford describes Talbot as "a midsize player in the Lloyd's market," with about 5% of the Lloyd's market capacity. He would not discuss Talbot's premium income.
Despite the gloomy macroeconomic indications, Talbot is expecting to increase its political and trade credit risk premium volumes by about 5% to 10% this year. Bamford noted Talbot's success in seizing market opportunities in the disarray that followed the 2008 global financial crisis. Between 2008 and 2011, Bamford said, Talbot increased its political and trade credit book by 100%.
In an email response,
The growth of the market in recent years has been influenced by an increased awareness of risk and by changes in the regulatory environment, according to XL.
XL mainly offers primary cover in the private insurance market, but it can support export credit agencies with reinsurance. XL declined to discuss the size of its own book. But it did note, "We are a new unit and just getting started."
Lewers said the market can provide per-risk capacity in investment and contract frustration at just over a billion dollars and capacity at about
In addition, there is market with a total premium value of about
Lewers concedes this figure represents his suspicion, rather than solid data. "It's hard to get a good grip on premium because nobody really tells you how much premium they write," he said.
Pricing variation is likely to be strongest in the credit area, Lewers said.
"It is in pretty robust health," he said of the political and trade credit risk market.
The growth of per-risk capacity during the past two or three years has enabled the commercial market, and
And while an abundance of capacity in the market has led to disappointing prices, Lewers expects new underwriting opportunities to appear over the next year.
The market "has recovered well from the financial crisis in 2008, which spilled over into 2009," he said.
The crisis in the
Over the coming months, Lewers sees plenty of tests for the risk selection skills of underwriters. A key to the resolution of the euro crisis, he believes, will be the fate of
There is improvement in the economic picture in
Lewers, who has detected a move by the political risk market in
Lloyd’s and units of XL have current Best’s Financial Strength Rating of A (Excellent.
(By
Copyright: | (c) 2012 A.M. Best Company, Inc. |
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