You may not have heard of Political Risk, Credit & Bond insurance, but it’s a vital financial instrument that helps money flow, commerce take place and infrastructure get built. As an expert in this field, I’ve seen its power to unlock flows of finance; it plays an important role in driving positive change for economies and communities.
Political risk insurance and credit insurance facilitate foreign direct investment across the world. We work with private banks, investors, export credit agencies, regional development banks and others to back projects that boost development, improve infrastructure, enable access to affordable energy or housing, and much more.
Every risk is different and the external environment is constantly shifting, which makes what we do truly bespoke. That’s made my career a fascinating journey. There’s a real sense of delivering something that can enable societies to grow and prosper. The industry has evolved too, with new clients asking for new solutions, all the time.
Political risk and credit insurance helps change happen
The solutions we offer enable a wide range of investments across the world. We’ve supported several affordable energy projects in Uzbekistan and Egypt that will increase local energy security by reducing reliance on imported energy sources. Multilateral financial development institutions come to the market for insurance to help them boost their capital and accelerate the impact that capital can have.
We’ve provided coverage to the finance for water desalination projects in Chile. We’ve worked with non-banking institutions in India focused on building affordable housing for the country’s growing population. We’ve backed facilities that give access to credit to minority-owned organizations in South Asia. The list continues to grow.
We offer coverage for default on a loan or inability to pay, which may be caused by a change in government, for example. More generally, though, what we cover is debt.
We support investments that create societal change. That feels good, and it aligns with our purpose to act for human progress by protecting what matters.
Trade is a constant of human activity
We’re in a fast-changing era of geopolitics. But sadly, throughout human history, peace and stability are the exception, not the rule. The ground is always shifting. There does seem to be a reordering of regional political and economic blocks at the moment.
But even through the most challenging of times, people have always traded. There’s always risk involved in those trades, and we are here to reduce uncertainty where possible.
We need to look at where there are flows of trade, where there are opportunities. Where are the projects that are going to need funding? How will we finance the investment gaps in Sub-Saharan Africa, for example? What learnings can we apply there, and vice versa?
Building resilience and fuelling growth
Political risk insurance may be more exposed to headlines about the changing geopolitical landscape than other areas of the insurance market. Certainly, we’re always among the first to receive questions from stakeholders when something happens.
But, at the end of the day, it is the ultimate results that count. As a business line, we’ve managed to navigate geopolitical shocks and the COVID-19 pandemic and the instability that followed, for example.
We’ve delivered stable results. That’s because there’s a method behind everything we do. Yes, we are a credit-sensitive business, but we’re also a niche where technical expertise and thoughtful underwriting really make a difference.
We’re clear about the clients we want to work with, and we are transparent with them, too. We want to be open-minded and offer solutions that support investments to boost local economies and deliver tangible benefits.
Underwriting political risk can be challenging - if it were easy, everybody would be doing it. Underwriters in our market tend to be highly skilled, intellectually curious, multilingual, thoughtful and analytical, and claims professionals are highly motivated, and willing to learn lessons when things don’t pan out as expected.
Multi-decade investment backing
Unlike other insurance lines, political risk and credit insurance doesn’t really operate on an annual renewal basis. Every project is a one-off, every risk is unique. Those projects, and the investments backing them, are usually long-term commitments.
We need to match the tenure of the financing of those projects, so the policies we write can be longer in duration, sometimes decades.
That, and the fact that these policies are so bespoke, means we need to think very carefully about modelling. We have to ask ourselves if the project makes sense. We stress test rigorously.
Projects are often very large – sometimes running into billions of dollars – and can be complex, so we really need to be sure we understand the risks and opportunities to feel comfortable in committing for those lengthy terms.
We do write shorter-term contracts too, which helps to give balance in our book of business. Shipping or airline financing is often shorter in duration, while trade finance and commercial surety tend to need policies of 12 months or less, giving our portfolio diversification and sustainability.
Driving future progress
One of the most exciting things about working in political risk insurance is knowing that we are supporting and enabling productive investment.
It’s incredibly rewarding for us when we see a client attain their goals. There’s a real sense of accomplishment in knowing that your policy has enabled a project that might otherwise have struggled to get financing.
We support investments that create societal change. That feels good, and it aligns with the AXA purpose to act for human progress by protecting what matters.
A good example is how our products and services support investment in future energy sources. The world is seeing an increasing demand for electricity, and investors need a stable outlook. There’s lots more about how we can help in this report.
The world around us doesn’t stand still and neither does the political risk and credit insurance market. I look forward to the next few years and the challenges and rewards they will bring to us and our clients.
