Rising geopolitical and geo-economic tensions are leading to increased uncertainty and risk for multinationals with direct foreign investments, which in turn provides opportunity for political and trade credit insurance, and by extension captive insurance.
This is according to Marsh's Political Risk Map 2019, based on data from Fitch Solutions, which rates more than 200 countries and territories on the basis of short- and long-term political, economic, and operational stability and gives insight into where risks are most likely to emerge.
“Businesses with direct foreign investments are facing an unprecedented breadth of challenges today from emerging economies to so-called developed economies,” said Evan Freely, global practice Leader, credit specialties, Marsh.
“In uncertain times, vigilance and broad, systemic risk analysis coupled with political and trade credit insurance, will be vital to minimising these threats.”
Among protectionist sentiments and ongoing trade disputes, Marsh identified a number of areas where new risk is likely to emerge.
Some of the key findings from the report include a more multi-polar world order of protectionism likely to continue in 2019, with isolationist and protectionist sentiments and practices rising in some counties adversely impacting the process of globalisation.
It also noted that trade tariffs and geopolitics disputes between US and China could escalate in 2019, bringing increased risk of retaliation and export heavy economies like Germany impacted.
Other political uncertainties were identified from Brexit, Russia's relations with the West, the political instability in Spain and Nicaragua, among others.
Political changes and instability can have an adverse impact on an investment's returns or affect the profitability of a business, and captives can provide coverage for countries where this coverage is unavailable in the commercial market.
In a previous article, Robert Geraghty, business development manager for EMEA and Asia Pacific at Marsh Captive Solutions, suggested there had been a 58 percent increase in captives insuring political risk in the past few years.
Marsh, Political risk, Insurance, Captives, Global