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.

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.

“The credit crisis was really the most significant event we have ever seen or hope to ever see in our careers,” said Keith Dunford, vp-worldwide underwriting manager for political risk at the Chubb Specialty unit of Chubb Corp. of Warren, N.J. However, “everything has moderated now.”

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 government's decision to allow failure of the nation'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 government's “unexpected behavior” compelled insurers to tighten their banking risk underwriting “in many countries,” Mr. Woollam said.

Other market executives agreed.

“We reviewed our portfolio and changed our strategy to reflect we're still in a weak economic environment,” said Navaid Farooq, a London-based senior underwriter for Catlin Group Ltd. “We believe” the financial crisis is ending, so “most of the problems, hopefully, have been reported.”

The countries with the greatest credit risk include Kazakhstan as well as Bahrain, Latvia, Turkey and Ukraine, experts say.

Credit risk capacity estimates range from $450 million to $700 million. Buyers typically purchase $10 million to $20 million of limits, experts say.

Meanwhile, political risk insurance pricing is relatively soft, executives say.

Political risk “is one of the more stable markets compared to the credit insurance market, which had horrific loss ratios” in 2009, said Roger Schwartz, New York-based senior vp at Aon Trade Credit, a unit of Aon Risk Services Inc.

A notable exception last year was sovereign contract frustration coverage. Rates spiked as much as 30%, said Claire Simpson, a London-based political risk underwriter for Lloyd's syndicate 33, managed by Hiscox Syndicates Ltd.

This year, rates are down 5 to 15% as risk managers fight hikes because of budget restrictions, said Evan Freely, the political risk and trade credit practice leader at Marsh Inc. in New York. Insurers recognize that political risk cover is a discretionary buy and are relenting on rates, he said.

Estimated worldwide capacity for political risk insurance is $1 billion to $1.5 billion, though capacity shrinks as policy duration grows. Buyers typically secure between $20 million and $50 million in limits, said Dan Riordan, the Washington-based president of the surety, credit and political Risk unit of Zurich North America.

Africa is the most politically unstable region, according to Chicago-based Aon Corp. 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 (BI, Feb. 1).

Most market executives would not speak for attribution about political risk in China after Google Inc.'s threat to pull out of the nation, citing attacks on the e-mail accounts of Chinese human rights activists.

“It's always been a risky place to do business in,” but that has been factored into rates, said one executive, who echoed other assessments.

Zurich's Mr. Riordan noted that special political risk insurance covers interference with operations. The coverage typically protects investors in oil and gas operations, but it can be tailored for other types of business, he said.

Aon said political risk or credit risk deteriorated in 18 countries, but has improved in nine, including Albania, Colombia, Sri Lanka and Vietnam.

At the Washington-based U.S. Overseas Private Investment Corp., a review for a midyear rate reduction for oil and gas operations, manufacturers and schools is under way, said Rod Morris, vp-political risk insurance.

To draw commercial insurers into riskier countries, OPIC has expanded its reinsurance book. In addition, OPIC will cover title insurance losses and intellectual property losses that are “discreet and identifiable,” such as research and development costs, Mr. Morris said.

The World Bank's Washington-based Multilateral Investment Guarantee Agency recently improved its political risk coverage, said Marcus Williams, strategy and operations adviser.

He said MIGA now covers a default of a sovereign financial guarantee and temporary business interruption losses resulting from war or civil unrest. It also no longer requires arbitration if a counterparty defaults on a contract.

In addition, MIGA is developing coverage for banks that make investor loans, but the product would not cover the value of those projects, Mr. Williams said.