Looking Back and Looking Forward: The Future of the Political Risk Insurance Industry
and evaluating the cost to them of self-insurance versus political risk investment insurance. Ansermino noted that high levels of corporate liquidity have made project finance less attractive; banks have been forced to look for new uses of their own capital. This has spurred innovation in structuring deals—including the management of political risk. Revenue streams denominated in local currencies pose particular risk management challenges for lenders without adequate hedging products to turn to—thus creating an opportunity for insurers. Ansermino (2008, 235) did not venture a forecast, but observed that “it will be interesting to see how this issue plays out.” Ansermino concluded by asserting that macroeconomic factors (especially growth in China and India) will create a boom in the commodity cycle that will result in the expansion of capacity in a number of developing countries—thus creating “demands for political risk capacity on an unprecedented scale.” This will particularly be reflected in the energy sector—with the Middle East continuing to be unstable. China has been and will continue to be particularly active in trying to ensure security of supply. Political risk mitigation has been and will continue to be a priority in structuring new investments into emerging markets. Consumers are becoming better informed and more selective in their selection of political risk investment insurance coverages. “Pricing will become more transparent and consumers will demand more sophisticated products from insurers…. users will be looking for answers to the local currency issue” (Ansermino 2008, 236) Ansermino assumed that there will be an increase in absolute demand for political risk investment insurance coverages as well as improvements in the quality of the coverage. In the future, the private market will stretch and compete less with public sector providers—which will presage an increase in pricing. Other factors will affect the market, including the offering of guarantees by development finance institutions and the role of entities like Sinosure. There is likely to be a higher degree of cooperation between public and private insurers to use their available capacities more effectively. Traditional coverages will be reviewed, and greater scrutiny will be given to breach of contract coverage. Reflections Ansermino projected that development finance institutions offering guarantee products and developing countries’ growing political risk investment insurance capabilities will increase supply, which will, in turn, put pressure on pricing. The effects of these developments seem to have been relatively modest and do not seem to have greatly affected political risk investment insurance pricing, but instead have made sourcing of cover somewhat more challenging and confusing. The growth of Sinosure does seem to have mitigated the projected challenge to political risk investment insurance capacity because it has supported Chinese investors’ aggressive moves to secure resources. There was and is relatively little
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