Usage of Political Risk Insurance in Southeast Asia

The issuance of political risk insurance has increased worldwide over the last decade. The main drivers of this include the global financial crisis and political events such as the Arab Spring and civil/political disturbances in ASEAN countries, all of which increased risk awareness. For example, PRI issued from members of the Berne Union increased globally by 132.7% from USD 32 billion in 2005 to USD 74.5 billion in 2014.
Political Risk Insurance issued by Berne Union members increased faster in Southeast Asia than the global average. The main drivers have been increased risk awareness and stronger inward FDI flows. Between 2005 and 2014, PRI issuance in the region increased by 247% to USD 13.6 billion whilst total exposure grew by 133% to USD 27.8 billion, a share of 16% of global exposure. Whereas PRI cover increased throughout the region, only Brunei Darussalam and the Philippines experienced declining or stable PRI exposure. Indonesia, Singapore and Vietnam experienced the highest increases in PRI exposure.
  • In Indonesia, new business increased by 256% between 2006 and 2014. However, PRI growth coincides with an increase of FDI inflows by 275% to USD 18.4 billion between 2006 and 2013. Thus, the ratio of PRI issuance to FDI inflows remained at approximately 22%.
  • In Singapore, PRI exposure was insignificant until 2006, but has grown since then to USD 2.5 billion in 2014. Despite this substantial increase, the PRI issuance to FDI ratio remains very low at around 1%.
  • Vietnam experienced the highest increases in PRI exposure, which exceeded 6 billion in 2014. However, the increase coincided with an increase of FDI inflows from USD 2.0 billion to USD 8.9 billion in 2013. The PRI issuance to FDI inflow ratio has increased since 2005, reaching 36% in 2012 and 24% in 2013, which may indicate increased risk awareness.
  • The Philippines is the only country which experienced declining PRI exposure, despite increasing FDI inflows. This reflects expert statements that the risk level in the Philippines has been decreasing steadily.

PRIExposue

PRI issuance in relation to inward FDI flows in most Southeast Asian countries exceeds the global average, indicating higher perceived and actual risk levels. At a global level, 4.6% of inward FDI have been covered by Political Risk Insurance in 2013, a significant increase from 2.7% in 2006 and 2007. PRI to FDI ratios could serve as indicators for perceived risk levels, demand and supply. The countries can be divided into three risk groups:

  • Lowest risk level: Brunei Darussalam and Singapore
  • Medium risk level: Indonesia, Malaysia, Philippines, Thailand and Viet Nam
  • Highest risk level: Cambodia, Lao PDR and Myanmar

Thailand’s 9% ratio and Viet Nam’s 20% ratio are lower than expected, when compared against experts’ statements on the risk levels and demand in both countries.