It’s fair to say that the COVID-19 pandemic has had a widespread impact on the insurance market – but what about the credit and political risk sector, specifically?
Brokerage giant Gallagher has attempted to address this issue through new research it carried out in early July.
Speaking to insurers in the market it asked about claims trends and discovered that just one in three – 29% - reported claims that they considered to be attributable to the coronavirus pandemic. However, it highlighted that this is likely because much of the credit risk underwritten in the segment typically comes from Governments and companies they own, as well as sizeable corporates. It believes that their exposures are easier for those firms to deal with – and, as such, it may not be until the fourth quarter of this year and beyond that we truly grasp the full picture.
There were concerns expressed among current portfolios, however. In particular, underwriters pointed to aviation and oil and gas (both highlighted by 27%), as well as tourism (highlighted by 10%), as the main areas of concern.
“We would expect to see oil and gas in here given the scale of the industry for this class of insurance,” said Matthew Solley, managing director of structured credit and political risks at Gallagher. “Aviation is a more recent area of growth for this insurance class and underwriters are understandably concerned about the impact of the sector as it is arguably one of the worst hit by COVID-19. Tourism, however, isn’t traditionally an industry that we would expect to represent large exposure for this area of the market. As such, despite obvious concerns connected to this sector, it is interesting that underwriters are reporting it in the top three.”
Meanwhile, there were concerns over some countries within portfolios too – with Argentina topping the list at 48% thanks to its political uncertainty, followed by China at 29%.
There has been greater demand in some areas too, based on transaction volume. Oil and gas, as well as financial institutions and mining led the way among industries, while Cote D’Ivorie, Ghana and Egypt were listed as the leading countries.
“Various factors impact demand,” continued Solley. “One of these is where we see political activity such as elections. This may drive up spending by the relevant Government to support its re-election campaign. Additionally, projects coming to fruition that have been part of longer-term spending ambition of a Government, coinciding with a deteriorating view of risk. Looking at sectors, although oil & gas remains at the top for demand, renewables didn’t feature in the top 10 – actually coming in at number 12. Given the increased focus on clean energy, this is perhaps disappointing but may highlight both the dominant energy spend in developing economies as well as underwriting opportunity in more developed economies as banks have sought to insure even investment grade risk for oil and gas, which for some is a high aggregation class.”