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Hello everyone.
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I'm Stuart Ashworth and I'm Head of Broking and Market Engagements for the Financial Solutions Global Line of Business here at WTW.
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Financial Solutions is the WTW Global Centre of Excellence for credit insurance, non payment insurance, political risk insurance and it's where we house our lenders insurance advisory practice.
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Now timing is everything and as luck would have it, we've just completed a survey of the insurers in the credit and political risk market and I want to share some of those findings with you.
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So what is the financial solutions credit and political risk survey?
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In January each year, we approach our market to gauge their capabilities, appetites to see how they may have changed over the previous 12 months.
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In January of this year, we approached 59 insurers who kind of completed our capacity survey.
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Of these 55 insurers also completed their appetite preferences and capabilities.
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Our key findings, we were relieved to discover, is that the insurance market for these products seems to be in good health.
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This is important as we continue to see an increased demand from our clients.
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Our in-house data shows we saw a 35% increase in submissions in 2023, which resulted in a 25% increase in our insured portfolio.
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Now this increased demand is driven in part by the risk landscape our clients face and in part through greater awareness of the market and its capabilities.
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Now naturally demand is only one side of the equation, but our survey shows that the insurance industry is responding to this increased demand with increased capability and broader risk appetite.
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Now when we analysed the data, one key point that jumped out to us was that the total capacity available for transactional credit insurance rose 17% in 2024.
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Now that follows a similar rise at the beginning of 2023.
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However, when you look a bit deeper, you can see some interesting developments.
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The current geopolitical landscape is forcing a market wide flight to quality.
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In the current climate, insurance companies are looking to support lines of business where they see strong historical returns as well as product diversification.
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Credit and political risk insurance appears to be well positioned to receive continued insurance company management support.
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However, that support is not universal and is more focused on certain areas, notably credit and contract frustration.
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And for the first time in many years, we've actually seen a drop in the capacity and tenant appetite for political risks.
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Against the backdrop of political and economic uncertainty, our survey also shows that the insurance market has made a clear pivot away from emerging markets and towards more developed economies.
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Now this is understandable as fiscal constraints and the spectre of losses continue to hangover emerging market economies.
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This can maybe be understood if we look at some of our claims data.
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2023 saw the majority of claims activity come from the African continent.
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Now this was a combination of legacy issues around the default by the government of Zambia as well as significant losses stemming from Ghana.
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But also on the credit side, we've seen claims slowly but steadily creep up across Europe and across Asia.
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Despite these claims, insurers in this class of business continue to enjoy very low loss ratios and as a result, the number of insurers in this space continues to grow year on year.
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Be it new syndicates, new insurance companies or MGA's, we've seen a number of new entrants coming into the marketplace.
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Now as with any marketplace, new participants need clear differentiators to try and steal market share.
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As the field becomes more crowded and more competitive, we're starting to see insurers specialized their offerings to focus on a subset of the market in order to attain market share and get a competitive edge.
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Many insurers are also looking to diversify their offerings, with some choosing to sell business Information services while others expand the scope of cover to include cover for areas such as business fraud or covering an increasingly diverse range of industries and sectors.
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But if we future gaze to our crystal ball, what do we think may happen over the next few months?
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Economists continue to predict a global economic slowdown.
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However, the U.S. and much the developed world has so far shown resilience.
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Interest rates in the U.S. may not go down as predicted, and if that happens, liquidity may run dry and bankruptcies may go up.
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And if that happens, we will likely see premium rates increasing.
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But strong competition from carriers and ambitious growth plans will limit any increases.
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In the political risk insurance world, following a tumultuous last few years, some stability has finally returned to the European markets.
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But the geopolitical outlook is getting worse with several fault lines including the potential for escalation in the Middle East as well as the well documented geopolitical stresses and tensions in Asia.
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This has led some carriers exiting this class of business.
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Upward rate pressure is being felt, particularly in the U.S. on primary layers with clients being forced to attain more risk to manage costs.
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Also, lest we forget that 2024 is the year of elections where 64 countries plus the EU will go to the polls, so we expected increasing requests for cover.
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So approaching the market early with a clear and well framed proposition will be key.
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We hope this has been useful and thank you for listening.
