Regional Credit & Political Risk service and expertise

Catlin Asia has strengthened its regional underwriting capability with the recruitment of Martin Phelan to the newly created role of Underwriter, Credit and Political Risk. Based in Catlin’s Singapore regional hub, Martin will be working with brokers and clients across the Asia-Pacific region to deliver the full suite of Catlin’s Credit and Political Risk insurance products to support the needs of companies, investors and banks.

Catlin has been active in the Credit and Political Risk market within Lloyd’s for more than a decade. Having invested in additional resources since the 2008/09 financial crisis, Catlin today is one of the leading insurers in this market globally. The addition of local underwriting capability in Asia is also a recognition of the strong trade and investment outlook for the region generally and the increasing depth and capability in the Singapore market as a key trading centre in the region, not just for insurance but also commodities trading, financing and the broader financial services infrastructure (legal, accounting and other services). Catlin’s regional claims team will work closely with Martin in support of brokers’ and clients’ needs and already have a wealth of experience in this class.

Catlin offers significant amounts of capacity across the full range of Political Risk and Credit insurance products and has the flexibility to provide coverage for policy periods of up to 15 years.

We are delighted to have secured a person of Martin’s experience in this highly specialised market segment. Martin joined Catlin in May and has spent more than 20 years in broking and trade and corporate finance.

Challenging global political and economic outlook

The volatility and uncertainty afflicting the political and economic environment in many parts of the world (both emerging nations and many developed economies) appears highly unlikely to abate, at least in the short term.

For many companies and financial institutions, Credit or Political Risk insurance coverage is a key enabler for continued trading and investment activity. Whilst our underwriting appetite in selected territories is necessarily cautious, Catlin continues to support the needs of our clients and broking partners.

Whilst the outlook for most countries within Asia is relatively more optimistic than for much of the rest of the world, risks remain within the region, and the continually developing trade and investment patterns generally are each typical of the challenges regularly addressed by the Credit and Political Risk insurance markets.

Examples of current or emerging issues with which Catlin is actively supporting our partners include:

• financiers to the region’s emerging countries which are needing to diversify away from Iranian suppliers of crude oil following the introduction of more stringent international sanctions.
• capital goods producers and exporters reliant upon provision of tied/vendor finance or extended-medium term deferred payment (buyer credit).
• continued investment in the mining, oil and gas and energy sectors. Many of the world’s significant undeveloped natural resources lie in politically volatile or developing nations. The investments required to realise these resources are significant, as are the time horizons to achieve returns on the investment. Political Risk insurance provides companies and financiers with long-term committed risk capital protection against key risks associated with the actions of the host country government which can impact upon a project’s performance and viability.

Market update: recent events, significant losses 

The Credit and Political Risk market paid a significant amount of claims following the 2008/09 financial crisis, largely attributable to the insolvency or financial default of banks and financial institutions in a number of emerging markets in Eastern Europe, Central Asia and the Middle East.

Whilst largely unrelated to the financial crisis of 2008/09, large claims also arose on a number of agricultural and commodity based financings in emerging markets in South East Asia and Latin America and, probably the most significant of all, has been the financial default of a major state-owned industrial enterprise, which had previously been considered to have the implicit support of the (South East Asian) sovereign government as a strategically important enterprise.

In aggregate, these cases are estimated to represent losses in excess of US$2.5 billion to US$3 billion, not including uninsured losses of a further several hundred million dollars. Whilst in the majority of these cases, insurers have already realised some recoveries against claims paid, in some instances recoveries will not be realisable and it is quite common for periods of ten years or longer before final recoveries are realised following the payment of a claim to an insured client.

More recently, the events of the ‘Arab Spring’ (Libya, Egypt, Tunisia, etc), to date, are not believed to have generated material claims to the insurance market. Whilst there have been significant insured exposures, it is likely that these have either not suffered material damage or any disruption to operations has been relatively short term in nature and accordingly not triggered coverage.

What is clear, irrespective of whether the continuing events represent a contagion from the initial uprising in Tunisia or are unrelated events and whether their root cause lies in economic, political, ethnic or religious dissent, the instability currently being seen in numerous countries across the Middle East, Africa (North, West, Central and Sub-Saharan) and elsewhere and the speed and extent to which many of these conflicts have not been foreseen underlines once again the risk associated with relying upon short-term due diligence or ‘stability’ as a basis for long term investment decisions in foreign markets.

Catlin’s Credit and Political Risk expertise

Catlin is known in the Credit and Political Risk markets for its innovation and flexibility and has developed bespoke insurance solutions for clients, whether corporates, traders or financial institutions. Our areas of particular focus and expertise include:

• Credit – single risk coverage (as distinct from multi-buyer or whole turnover Trade Credit insurance), being non-payment or non-honouring of payment obligations (guarantee’s, letters of credit, etc.) for periods ranging from 30 days to more than five years in the case of sovereign government obligations, generally in emerging markets; and
• Political Risk – providing coverage against risks including confiscation and expropriation, political violence, currency inconvertibility and other forms of adverse and capricious actions of foreign governments (such as breach or repudiation of contracts or licences etc.) in respect of investment risks in new or existing projects, physical assets, loans and other receivables and contracts for sale/supply of goods or services.

We can offer capacity of up to US$65 million in respect of Credit insurance and up to US$90 million on Political Risk contracts.

To learn more about our products and appetite please contact Martin Phelan on +65 68543800 or martin.phelan@catlin.com.