Over the last 12 months, the cost of credit default swaps – which insure against sovereign debt defaults – has jumped globally by 102%, on average.
According to research by global specialty (re)insurance group Chaucer, the average increase across Europe was 112%; in the Americas, 54%; Asia & Pacific, 179%; Africa, 70%; and in the Middle East, 1%. Additionally, it was found that 90.9% of the 88 countries that were examined have seen a rise in cost.
In the UK, as of the middle of November 2022, the increase stood at 148%. The highest rates of change were recorded in Pakistan and Sri Lanka – 1,187% and 420%, respectively. They were followed by Hungary, at 294%.
Chaucer asserted that what the surge has done is shine a spotlight on other forms of cover like contract frustration insurance.
“What is noticeable is the demand for insurance against contract frustration in major G7 economies,” said Jonathan Bint, senior analyst & underwriter at Chaucer.
“Normally demand for insurance against governments cancelling contracts is restricted to more volatile economies. Now we are seeing demand for this kind of insurance to cover contracts in countries like the UK, France, and Italy.”
Bint added that rising sovereign debt, interest rate hikes, and negative economic growth make a “perfect storm” for the global economy, potentially leaving businesses exposed to government contracts being cancelled without safeguards in place.
