Optio Group, the merged group comprising managing general agents (MGA) Ascent Underwriting, Cove Programs and broker Bay Risk Services, has launched a political risk proposition for foreign direct investors (FDIs) in higher-risk markets.
In addition to the standard political risks of expropriation, war and forced abandonment, Optio will provide ‘powered by Hiscox’ crisis management support services, in partnership with crisis management specialist, Control Risks.
The service will help contain losses by preventing situations such as detention of staff, illegal occupation, malicious prosecution and blockade from becoming irreversible.
The programme was devised by Nick Hedley, Ascent head of political risk and credit insurance. Capacity for the product is led by Hiscox, with other syndicates also participating.
The programme launch comes about, in part, because Hedley studied a trend which has seen a large volume of foreign direct investment being channelled into Africa, Asia and Mena, mainly from Europe, which is not coming to the London market in terms of insurance risk – at least not to the extent that one would expect.
Hedley tells GTR there are two reasons for this. “First, because the political risk market has focused increasingly on big ticket financial institution business over the past 15 years – to the extent that it is now believed to account for 75% to 85% of the market’s income.
“By ‘financial institution business’ we mean risks where the insured is a bank, multilateral organisation or export credit agency, and where the insurable interest relates to loan default due to commercial (credit) or political (contract frustration and political risk) reasons. The big brokers see this percentage increasing even further.
“Smaller ticket political risks, where the insured is a company making, say, an equity investment in a manufacturing, distribution or assembly business in Africa, is seen as something of a distraction set against the seven-figure premiums that can be obtained working with a multilateral on a 15-year project finance deal. Yet, this sort of business has always performed well and was originally the core business of the market.
“Second, the off-the-shelf products offered to these smaller corporate clients undertaking modest levels – US$25mn or less – of foreign direct investment are showing their age: being based on policy forms that were created in the 1980s and with 1980-style political risks in mind.”
Expanding further, Hedley adds: “London is a superb market for innovative, bespoke and manuscripted solutions for large risks, often involving policy limits in excess of US$1bn. However, the off-the-shelf products offered to mid-size clients for smaller risks are less compelling, and we believe this product addresses that deficiency.”
Hedley says brokers and clients are lamenting the fact that the London market seems to be heading collectively towards financial institution business to the exclusion of its historic clientele. He therefore argues: “An MGA, with a lower cost base than large insurers, is perfectly suited to develop and distribute products aimed at mid-size corporate clients from whom we are seeing strong demand for an updated and refreshed political risk product that also includes crisis management support.”
Hedley explains that this political risk cover is most sought after for FDI in emerging markets and on manufacturing, assembly and distribution operations in particular, as well as companies with mobile assets located in emerging markets – often to perform work on an infrastructure project.
Paul Western, group chief underwriting officer at Optio, adds: “Optio’s proposition is tailored for businesses typically lacking the sophisticated crisis management capabilities of Fortune 500 corporations, combining traditional indemnity with practical crisis support to avoid or mitigate loss and safeguard the lives of our clients’ personnel.”
Through this, the ambition says Hedley, is “to build a diverse book of political risk business for mid-size corporate clients, continually testing the relevance and efficacy of the product offering against the changing threats and risks facing investors”.
The merger of Ascent Underwriting with Cove Programs and Bay Risk Services in September 2018 created one of the largest independently-owned specialty MGA groups in Optio.
It is a group clearly on the go: last month, Ascent Underwriting appointed two cyber underwriters, Kieran Shiret and Henry Rydon, bringing additional cyber expertise and experience to Optio, with both having previously held underwriting roles at Beazley and Equinox respectively.