The global economic downturn will continue to affect the political risk insurance market in 2010 in terms of pricing, product demand, capacity, and underwriting approach. The market continued to harden substantially into the fourth quarter of 2009. Investment insurance rates increased by 10 percent to 25 percent, and contract frustration/nonpayment rates increased by 15 percent to 30 percent, reflecting carriers’ belief that years of soft market conditions have left many programs significantly underpriced, particularly in relation to current elevated risk profiles. However, rate changes varied significantly by insurer and insured.

Looking Ahead

Existing holders of three- to five-year investment insurance should expect the recent multiyear trend of decreasing rates and loosening terms to have ended. Whereas insureds had previously focused on canceling and rewriting policies for softer rates, they are now aiming to simply maintain current, favorable terms.