Financial institutions increasingly turn to credit and political risk insurance

The credit and political risk insurance market is quickly becoming an established alternative for financial institutions to manage their country exposures, transfer their credit risks, and free up valuable capital, according to Marsh.

The firm said that the volatile and unpredictable political risk environment has meant that financial institutions are increasingly turning to political risk insurance to mitigate their country exposures where they may have a high concentration of loan obligations at risk.

Financial institutions typically managed their loan concentration and default risks by selling their liabilities to other lenders and investors or by using other financial instruments like credit default swaps.

However, according to Marsh, the number of financial institutions using regulatory compliant trade credit and structured credit insurance to manage these risks has increased dramatically in the past several years.

Marsh global credit and political risk practice leader Evan Freely said: “Now that the credit and political risk insurance market has become an established risk mitigation option for financial institutions, they want to better co-ordinate their political risk and credit strategies on a global basis.”

Marsh has formed a new lenders solutions group made up of financial institution trade credit, structured credit, and political risk insurance experts to help financial institutes better co-ordinate their credit and political risk strategies on a global basis.

Freely said: “With Marsh’s Lenders Solutions Group, financial institutions will have access to the industry’s widest network of credit and political risk experts who can provide information on insurer appetite, transactions, pricing, regulatory and compliance issues in addition to quickly sourcing insurance capacity around the world.”