InView Spring/Summer 2016

6 InView | An independent eye on Insurance
WHY THE WORLD’S
POLITICAL STAGE IS A
HIGH-RISK MARKET
In a geopolitical environment that has never been as volatile, insuring against
political risk has entered an era of growing uncertainty. That said, the political
risk market in London seems to be growing. Francis Mackie explains.
Unheard of several years ago, even EU member states are
now being regarded as existing or potential political risk
territories, while events in the Middle East and North Africa
continue to create social and economic upheaval, with long
term global and geopolitical tensions and ramifications.
Political risk (and contract frustration) centres around
potential government intrusion into projects, operation of
assets or, for example, contracts for commodities or services/
supply of goods.
Insurers assess and underwrite political risk primarily
based on core original factors/events described in the
acronym CEND – cancellation, expropriation, nationalisation
and deprivation.
Nationalisation and cancellation are fairly selfexplanatory,
but expropriation and deprivation
can be less straightforward.
The former involves the ‘home’ government taking
control of the company, asset or commodity supplier
with which the insured has a contract or interest.
Deprivation is where, for example, an overseas government
prevents the movement of essential supplies, or the use
of an asset, for example by issuing orders for them to be
retained in a port until an extra level of import duty has been
paid, or restricting the use of or access to an asset in certain
geographical areas. The growing use of sanctions within the
global trading community also has an impact on political risk.
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