Protecting against political risk

11 September 2018

Changes and developments to political risk insurance are expected in the next 18-24 months, which will have an impact on companies operating, or considering operating, in multiple regions globally.

Increased exposure to political risk will be a very real issue for multinational construction firms over the next 18-24 months.

Looming elections, terrorist threats and a potential trade war are just a few factors that companies must bear in mind when entering and operating within new and existing markets.

Each of the so-called emerging markets have their own unique geo-political risks that can impact investors (e.g. European vs. US) and lenders in the construction field, particularly infrastructure.

Brazil’s upcoming elections, for example, could see a protectionist government gain power, leading to likely complications for “non-local” companies such as builders, developers and investors already active in the country.

As for Mexico, while the newly appointed President, Andreas Manual Lopes Obrador (AMLO) has so far appeared to have a reasonable tone on the subject of foreign trade (e.g. NAFTA), it is still early days to determine what direction and what changes the new government will put in place.

The jury is out as to how AMLO’s administration will treat foreign investment and regulation, specifically in the oil and gas and infrastructure space.

Terrorist threats are ongoing concerns in regions such as Africa, where the militant Islamic group Boko Haram are among a number still active. Even more so in the past few years, this has become a very present problem in developed countries such as the UK, France and the US, where ISIS attacks continue to threaten security, life and physical assets.

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Elsewhere, the uncertainty over the US-China trade tensions could impact many construction and development companies that operate within those regions.

This high level of unpredictability makes an impossible task of avoiding political risk – no matter how well a business knows a region. It is vital that companies have a serious think about whether their assets and balance sheets are adequately protected ahead of any major political event. And have a pool of experts who they can call on.

For more information, please contact Corina Monaghan, Senior Vice President of JLT Specialty US (New York) on corina.monaghan@jltus.com.

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