Global Credit & Political Risk

Trade Credit Insurance protects clients against non-payment by their buyers, most commonly covering the policyholder’s entire sales ledger (Whole Turnover cover), although coverage can also be arranged for individual buyers, helping to mitigate significant risk concentration. In addition to risk mitigation, trade credit insurance can enhance a company’s credit management and can also be used to support financing.

Non-Payment Insurance (also referred to as Structured Credit Insurance) is used by banks and other financial institutions to mitigate the risk of non-payment by an obligor, enabling the financier to achieve both risk mitigation and regulatory capital relief. Eligible transactions include corporate loans, asset-backed finance, trade and supply chain finance, project and export finance, derivatives, and loan portfolios.

Contract Frustration Insurance protects contractors if their contract is terminated unilaterally by their counterparty, or if they are prevented from being able to fulfil their contractual obligations due to risks such as war and civil war, currency restrictions or the actions or deliberate inactions of national or regional authorities. Coverage can be arranged for pre- and post-shipment risks and can also include non-payment or non-performance by governmental and state-owned entities and the unfair calling of contract bonds.

Political Risk Insurance provides protection against the risks faced by companies when investing, trading or operating on a cross-border basis. Examples include multinational corporations with overseas production facilities and contractors with fleets of mobile assets. Political Risk Insurance is designed to protect companies in the event that their investments or physical assets are confiscated or impacted by war, civil war or political violence, as well as the risk of loss arising from discriminatory changes in regulation or tax treatment.

A surety bond is an instrument issued by an insurance company (the surety) to a project owner (the beneficiary), guaranteeing that the surety’s client (the principal) will fulfil its contractual obligations to the beneficiary. Surety bonds are a mandatory requirement in some territories.

• Contract Bonds. Surety bonds are typically purchased in respect of contractual performance, for example in the construction industry, and can also cover advance payments, reserves or retention for liquidated damages, and future restitution liabilities. In a loss scenario, payment by the Surety will enable the beneficiary to appoint a replacement contractor to ensure completion of its project.
• Commercial Bonds. Surety bonds are also widely used as a security against tax or customs duty liabilities. Companies involved in the import and export business, particularly in the FMCG sector, can benefit from a materially reduced administrative burden as well as protecting their working capital by providing such a bond to the customs authorities of their trading partners, so that duties don’t need to be physically settled in respect of each individual consignment of goods. In a similar manner, some jurisdictions require or permit companies to obtain tax bonds as a form of collateral against future tax liabilities.