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A whole new world: as U.S. companies increase international investing, political risk insurers take advantage of new coverages and new markets.

Article Excerpt
After a couple of lackluster years, the demand for political risk insurance is heating up again, and capacity is starting to expand.

The handful of companies that dominate the marketplace--Ace Group, American International Group, Chubb Group of Insurance Cos., Zurich North America and Lloyd's--say political risk insurance is expected to grow in 2004, through both new business and new products.

From U.S. contractors building bridges, water treatment plants, oil refineries and infrastructure projects in such emerging markets as Brazil, China, Russia and Mexico, to middle-market companies selling or buying goods and services through developing countries, political risk insurance compensates insureds when their foreign investment is lost due to the act of a foreign government, or war or terrorism in that foreign country.

In the wake of Sept. 11, the demand for political risk insurance dropped sharply as companies pulled back overseas investments.

"This past year, 2003, was probably the most difficult year that most underwriters that have been in the market for 15 to 20 years can remember," said Keith Dunford, vice president and manager of political risk for Chubb & Son's commercial insurance business. "Foreign direct investments came to a screeching halt after Sept. 11, and the money flowing across international borders simply slowed down. As a result of that, there was less demand for political risk insurance."

Although Sept. 11 itself didn't trigger any political risk insurance claims, it slowed down international investing and tightened the reinsurance market, which political risk insurers rely on for capacity. Sept. 11 was one of three major market disruptors--the Enron debacle and the Argentine financial crisis also hit the market hard, said Julian Edwards, head of political risk business for Ace European Group, which includes a Lloyd's syndicate.

After Sept. 11, the Enron situation and the Argentine financial crisis bit in quick succession, reducing the worldwide capacity for political risk insurance by 50%, Edwards said.

Edwards estimated the capacity for political risk insurance fell from $1.7 billion before Sept. 11 to $800 million three or four months later. He said he expects it to increase by 10% to 15% in 2004.

"The market is a lot more confident. We're seeing a lot more activity," Edwards said.

As the world and U.S. economies recover," we will certainly see more business," Dunford said.

Harry Palumbo, vice president of American International Group's Global Trade and Political Risk Co., said he's also seen an increase in business in the past six months. "We've started to see a pickup in the market and in international investing, as the economy has...

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