BPL Global directors Oliver Wright and Sam Evans look at how specialist insurers can facilitate Africa’s development.


The world is becoming a riskier and even more complex place to do business. The role of insurers is therefore more important than ever in supporting Africa’s growth story.

At a time when much of the world is starting to emerge from the pandemic, geopolitical headwinds, rising inflation and rocketing energy prices are threatening to destabilise global markets. Investors are understandably wary and are approaching emerging markets with a heightened sense of caution. Africa in particular is perceived to be a trickier region to do business.

In recent decades, regions in North and East Africa have been rocked by political instability, while certain West African markets are faced with a growing debt crisis. Political risk in Africa, however, is often misrepresented, and lucrative rewards can await investors and businesses willing to understand this complex, diverse region.

Specialist cover – such as political risk insurance (PRI) – fortifies transactions, helping projects to become more economically viable and protecting cash flows, while facilitating much-needed foreign investment into the region. From a PRI perspective, Africa is a natural market for this type of cover. With a heightened perceived risk profile, the continent already forms a large part of many underwriters’ books.


Understanding PRI

Naturally, investors and multinational corporations view political turbulence as a threat to their assets. Instability in a region can cause the value of assets to plummet or, if the situation escalates, property may be destroyed or confiscated.

PRI, however, provides specialist protection for investors, businesses and financial institutions against losses resulting from certain political events. For example, that government action will derail a project and cause the insured to experience significant financial losses.

This type of cover offers longer tenors too, to match the timescales of return for certain developments in emerging markets.

Recent studies, however, have shown that the benefits of political risk insurance relative to its cost have been systematically underestimated by equity investors.

Aside from the obvious advantage of a monetary recovery if a covered loss occurs, PRI insurance provides an effective safety net for a class of risks that are – by their nature – hard to predict, particularly in the long term. This cover also reassures prospective lenders and gives enhanced exit options. The cost of PRI is therefore far outweighed by the benefit it creates.


Supporting Africa’s growth story

Through PRI, insurers have a part to play in Africa’s development too. Specialist cover can help to mobilise much-needed capital into emerging markets. Presently, Africa’s budding economies are in desperate need of foreign investment to finance essential infrastructure development and the sustainable energy transition, a core focus not only for the continent but for global climate change targets. According to the African Development Bank, Africa will require an estimated US$170bn annually by 2025 to finance the necessary development of its infrastructure. If current capital flows are anything to go by, that could mean a financing gap of around US$100bn per year.

Realising Africa’s renewable transition, including the potential of captive power projects, requires specialised project financing. Underwriters are therefore seeing more hybrid project/corporate finance deals as a result, alongside the large, sophisticated renewable energy projects. The PRI market has the technical ability and appetite to underwrite these deals.


A strong appetite for Africa

As a specialist PRI broker, Africa accounts for BPL Global’s largest regional exposure, around a sixth of our total book. In Africa alone, BPL Global placed new policies with an aggregate limit of US$2.8bn during 2021/22. But this comes with a relatively low loss ratio. This may be surprising to banks and other insurers, particularly in North America, who perceive Africa as inherently risky. But time and again, we continue to see robust, good-quality transactions.

There is strong appetite from the insurance market to support a range of transactions in Africa, albeit with a mannered approach. The region is preferred among many of the underwriters we work with who specialise in emerging markets. These underwriters actively support transactions in Africa, are comfortable with the territory, and able to roll with the punches rather than hit the panic button if they are faced with glitches or delays.

The role of PRI to facilitate attractive investment and sustainable trade with African markets is evident. There is now a greater need for institutions that want to do business with the continent to source the right PRI insurance, and the appetite from underwriters is evidently there to provide it.

The overlying message is clear: when it comes to Africa, the PRI market is open for business.


About BPL Global

BPL Global is the world’s leading specialist credit and political risk insurance broker for multinational corporations, banks and non-bank financial institutions. Find out more at www.bpl-global.com