Political risk insurance growing in Canada

Published: June 2, 2017

Updated: July 24, 2018

Author: Luke Jones

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Political risk coverage is increasing in Canada, but it is not entirely down to growing risks from an unstable world. Instead, there are several factors behind the rise of this type of coverage.

Energy companies are expanding to unstable countries and banks are lending more to emerging economies, according to Richard Abizaid, political risk and trade credit leader for the Americans at XL Catlin.

“For Canada, what’s really driving the demand is not so much increased geopolitical risk but, from a bank’s perspective, more an awareness of what the private political risk market can offer, how it can provide solutions to them that they didn’t previously have,” Abizaid said. “Canadian banks, traditionally, when they’re selling down their risks, they’re selling to other banks.

“With the insurance market now being able to support these domestic transactions in the non-trade and project financing space, they have an alternative distribution channel to lay off this risk. This is a fairly new development in our market. We haven’t been always been able to offer this product.”

Brokers are driving political insurance, but Abizaid says it hasn’t become an important line of business for brokers yet.

“If you look at what’s happened in Ukraine, with the rebels, there are certain parts of eastern Ukraine that are not safe to operate in. Because of the political violence there, it has forced investors to abandon their investments and that’s what’s covered,” Abizaid said. “Under political violence there’s also business interruption covering up to 12 months of lost business income due to damaged assets.”

Other areas of political insurance are government seizures, not paying for resources, or the lack of ability to change local currencies into dollars.