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Political turmoil in countries like Venezuela and repressive policies in places like Brunei may be attention-grabbing but do not necessarily translate to claims scenarios for political risk insurance, experts say.
Events like those in Brunei, which recently proposed death by stoning for adultery, among other measures, “certainly raises the profile of the country from a risk perspective, but I’d say there is a separation between these events and the coverage our policies give,” said Nick Robinson, head of specialty in London with Neon Underwriting Ltd.
Such countries instead tend to represent potential consequences or worst-case scenarios.
There is a steady stream of headlines about political instability from places like Venezuela “that bring home the very real prospect of political risk,” said John Minor, director of crisis management and political risk for Aon PLC in Chicago.
Venezuela, for instance, does not offer insurers much, if any, opportunity to deploy political risk capacity.
“Venezuela, though headline news, is one that is more the exception than the rule in terms of risk pricing and committing any capacity,” said Rafael Docavo-Malvezzi, senior vice president and global head of risk, political risk credit and bond insurance for Axa XL, a unit of Axa SA.
Several sources used the analogy of providing property coverage for “a house already on fire” in describing why most political risk insurers won’t offer coverage for Venezuelan risks.
Legacy relationships between some energy companies in the Caribbean and Petróleos de Venezuela SA, the state owned oil company, and minority shareholdings that PDVSA has in some of those companies have reduced insurers’ appetites, said Marc Wagman, New York-based managing director in the credit and political risk practice group of Arthur J. Gallagher & Co. “Insurers are often reluctant to be seen underwriting entities which, though not sanctioned, may have shareholders which are.”
Rising global instability and increased investments in emerging markets is driving more demand for more political risk and trade credit insurance and capacity is growing, experts say.