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CPRI in 2019: The Year of Resilience?

Posted by on 13 March 2019
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Between 2015 and 2018, credit and political risk insurance (CPRI) saw a 30% increase in both capacity and tenors. Figures for 2019, on the other hand, show more modest growth in overall CPRI capacity and a small decline in credit capacity. But as James Esdaile, Managing Director, BPL Global, explains, these headline numbers only tell half the story of where supply and demand for CPRI currently stand.

Challenges abounded for the CPRI market in 2018. The UK Prudential Regulation Authority (PRA)’s consultation paper on credit risk mitigation (CP6/18), the loss of some CPRI providers and, of course, Brexit, all presented hurdles for the industry last year. And, according to our latest CPRI Market Insight report published in February, overall credit capacity even marginally decreased.

On the face of it, this is a somewhat mixed picture. A more thorough analysis, however, reveals   that the market has shown resilience in the face of last year’s regulatory hurdles, from its coordinated response to the PRA’s CP6/18, to its preparations for Brexit.

What’s more, despite the dip in overall credit capacity, we have detected significant growth across key product lines, as well as new market players and demand and appetite trends – most notably, a shift towards OECD risk. Indeed, there remains plenty of optimism – and plenty of opportunities – within the CPRI market.

Fresh growth

There has been an encouraging increase of around 15% in the maximum per risk capacity for non-trade credit business, coupled with increases to both non-payment public obligor and political risk lines. The latter two now both stand at US$3.2 billion maximum per risk capacity – a US$200 million capacity increase apiece from the previous year.

Last year’s revised Lloyd’s regulations around syndicates' ability to underwrite CPRI have contributed to the growth in capacity for the non-trade business line: Lloyd’s syndicates can now obtain approval in advance to write non-trade risks rather than seeking risk by risk approval as in the past. Importantly, the growth in non-trade capacity also points to the market’s swift response to increased client demand for this product line.

Shifting demand

Non-trade is not the only area in which demand trends have changed over the past year. While it is true the market continues to receive the bulk of its enquiries from the extractive sectors (oil, mining and metals), it has more recently seen increasing interest from the transport and power industries – and significantly from aircraft, shipping and renewables.

Financial institutions represent the vast majority of CPRI buyers, and we have perceived shifts in what they ask of the market. Our enquiry flow over the second half of 2018 shows that bank demand for longer-term project finance risks has risen significantly, and now represents 13% of all enquiries we receive from those clients.

Moreover, 22% of all our bank enquiries in H2 2018 related to unsecured corporate lending, indicating a demand shift from the sector to cover risks in OECD territories. This is reflective of a wider trend: one in three enquiries that we received during the same period related to OECD risk.

Openness to OECD risk

Indeed, the movement towards covering OECD risk can be perceived at both ends of the market. In the face of evident and heightened demand for single-situation credit insurance in OECD countries, the market has naturally responded with an increasing receptiveness to covering such risks.

Over the course of 2018, for example, we noted an increase in our exposure to OECD-located risk across our portfolio.

In addition, OECD countries have also, for the first time, featured in our top ten highest value claims collected across our portfolio over a three-year period. Between 2016 and 2018, both Spain and Germany ranked sixth and seventh in this respect, with claims totalling US$32 million and US$27 million respectively. This is another indicator of the market’s increasing appetite for risk in the region.

With such changing demand and risk patterns, this type of responsiveness from the market is critical to ensuring further uptake and development of the CPRI product. As such, 2018 – although tempered by challenges – was a clear testament to the resilience and agility of our market and an encouraging sign of its continued progress in the coming years.


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