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Captive insurers can mitigate political, trade credit risks


ORLANDO, Fla. — As political and trade credit risk rise in importance to multinational corporations, captives can be used to help mitigate such risks, according to a panel speaking at the Captive Insurance Companies Association conference Monday in Orlando.

“Political risk has been in the news” from the Arab Spring three years ago to the more recent tensions between Ukraine and Russia, said Stephen Kay, senior vice president and U.S. practice leader for political risk for Marsh USA Inc. in New York.

Mr. Kay said recent surveys show “political risk as one of the key issues that have risen to the attention of the C-suite,” citing a December survey by McKinsey & Co. that named political risk as the No. 1 issue of urgent concern to corporations.

Indeed, a live poll conducted while the panel was speaking showed 87.5% of the audience said political risk was greater than a year ago, while only 12.5% saw it as the same and none said it was lower.

David Anderson, Washington-based director for global business development for Zurich North America's credit and political risk business, gave two case study examples of how corporations have used a captive structure to help manage political and trade credit risk.

In the first, $50 million of trade credit insurance for a commodities trader was secured through a $7 million captive facility together with a separate $43 million Zurich policy, allowing the risk manager to craft a “global financial risk solution” featuring both “diversification of risk” and “arms-length pricing provided by an insurer,” Mr. Anderson said.

In another example, a global drilling company secured $100 million in political risk insurance with a $10 million captive facility combined with a $90 million reinsurance limit from Zurich, Mr. Anderson said.

The greatest benefit of captives, said Rod Morris, Fountain Hills, Arizona-based CEO of R&Q Captive Management, is “that it allows risk managers and corporations to take control of their own destiny to a much greater extent” than as a consumer in the marketplace.

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