Demand for Political Risk Insurance in Southeast Asia

Demand for PRI increased worldwide following the 2007/08 global financial crisis, due to increased risk awareness on the part of both investors and lenders, furthered by events such as the European debt crisis, the 2011 Arab Spring and political unrest in Asia. In Southeast Asia, 66% of survey respondents confirmed that demand has increased over this period.

Despite increased risk awareness, there remain large disparities in perceived risks in the region, which influences demand for PRI. According to the experts interviewed, ASEAN countries can broadly be grouped as follows:

  1. Those for which most commercial banks (especially larger Asian banks) feel comfortable with risk levels, hence usually do not require political risk cover. This applies to BruneiMalaysia and Singapore.
  2. Those for which political risk coverage is required for certain infrastructure projects. This applies to Indonesia, Philippines and Thailand.
  3. Those for which political risk coverage is usually required for infrastructure projects. This applies to Cambodia, Lao PDR and, to a lesser extent, Viet Nam. The lack of track record in infrastructure projects in Lao PDR and Cambodia complicates the risk assessment process.
  4. In Myanmar, investors and lenders perceive political risks as high and almost always require political risk coverage.

Beneficiaries and buyers of PRI cover

The potential buyers and beneficiaries of political risk cover include investors, lenders, importers/exporters and contractors affected by political risks. The main beneficiaries are typically commercial banks, whereas PRI is mostly purchased by project companies or equity sponsors in order to ease access to debt financing from commercial banks. International banks and smaller regional banks are the main sources of demand, possibly due to their limited familiarity with the investment host country, single borrower or sector/country limits.