Public and private providers

Political Risk Insurance and Guarantees (PRI) are issued by private insurance companies, as well as bilateral and multilateral agencies. The global PRI market remains relatively small and is concentrated on a few main providers, despite the entry of new market insurance companies. The combined PRI issuance of the 12 largest providers accounted for 95% of overall issuance from Berne Union members in 2012. Bilateral agencies dominated the market: the two largest accounted for 77% of all bilateral PRI issuance and 57% of total issuance (MIGA, 2014). Likewise, the top two private providers accounted for 71% of issuance by private members of the Berne Union.

Source: MIGA (2014) based on Berne Union data

Supply of PRI from private insurance companies

Private insurance companies (such as the Lloyd’s market) and commercial banks provide insurance and guarantees to cover political and commercial risks in infrastructure projects. Private insurance companies tend to focus mostly on providing coverage for commercial risks and short-term export credit insurance, but are increasingly offering political risk insurance.

Supply of insurance from private insurers has decreased following the global financial crisis. For example, monoline insurance, where the monoline insurer insures the principal and interest payments, has hardly been available in Southeast Asia since then. Private insurers, however, are progressively offering PRI in a growing number of developing countries, raising overall capacity to USD 2.2 billion in 2014.

Access to PRI from private insurers significantly varies by country within the region, as well as by the nature of projects. Based on the testimony of experts interviewed during the survey, ASEAN countries can be broadly separated into four categories:

• Those for which private insurers are willing to provide Four-Point PRI (which includes expropriation, currency convertibility/transfer risks, political violence and breach of contract risks) for most infrastructure investments. This applies to Singapore, Brunei Darussalam and Malaysia.
• Those for which private insurers seem willing to provide Three-Point PRI (which excludes breach of contract risks) for infrastructure investments. This applies to Indonesia, Philippines and Thailand.
• Those for which most private insurers are reluctant to provide Four-Point PRI (due to a reluctance to underwrite counterparty risks such as breach of contract) but feel slightly more comfortable with providing a Three-Point PRI cover. Insurers often seek to obtain a sovereign guarantee from the Ministry of Finance. This applies to Cambodia, Lao PDR and Vietnam.
• Those for which private insurers do not underwrite infrastructure investment due to the high perceived risks, lack of data and track records to ascertain risks. This applies to Myanmar.

According to interviewed experts, most private insurers seek a sovereign guarantee before issuing PRI in riskier countries. This is a challenging requirement, as almost all ASEAN countries restrain from providing sovereign guarantees since these come with significant contingent liabilities.

Supply of PRI from bilateral agencies

Bilateral agencies, such as Export Credit Agencies (ECAs) and Ex-Im banks, are the main issuers of export credit insurance and investment insurance. These underwrite political and commercial risks with the objective to supporting their respective country’s national interests. According to the agencies’ websites, access to PRI depends on the project and country risk level, as well as the general purpose of the agency, whether it be investment or export facilitation.

The project assessed the products of ECAs and Ex-Im banks of the ten most important home countries of FDI inflows to Southeast Asia as well as bilateral agencies located in the region. Almost all of these bilateral agencies offer Three-Point PRI, which cover expropriation, transfer restrictions/currency inconvertibility and political violence. 10 out of the 16 agencies cover default on contract, only 5 cover adverse regulatory changes and only 4 cover the non-honouring of sovereign financial obligations.

Main providers of PRI cover in Southeast Asia include Japan’s Nippon Export and Investment Insurance (NEXI) and the China Export & Credit Insurance Corporation (SINOSURE):

Supply of PRI from multilateral agencies

Multilateral agencies have a small market share compared to private insurers and bilateral agencies. Nonetheless, their objectives, experiences and diplomatic leverage enable them to provide PRI cover for countries and projects with higher political risks. Agencies such as the Asian Development Bank (ADB), Islamic Development Bank and World Bank group, typically provide guarantees and loans for investments that are aligned with their development goals.

The report discusses in more detail guarantees provided by the Multilateral Investment Guarantee Agency (MIGA) and Asian Development Bank (ADB):

More information on providers of Political Risk Insurance and Guarantees is available here.