Joe Blenkinsopp, Global Head of Market Development & Distribution, Political Risk, Credit & Bond at XL Catlin, talks opportunities for the private insurance market.

China’s efforts to recreate the historic Silk Road linking it to Europe promise exciting opportunities for international trade and investors. While the insurance market isn’t quite as old as the ancient trading route, we have hundreds of years’ of experience and stand ready to meet insurance buyers’ needs as they invest in projects and take advantage of trading opportunities in this historic initiative.

Chinese President Xi Jinping’s US$1.4tn One Belt, One Road initiative aims to connect the major Eurasian economies through trade, investment and infrastructure development.

It has been hailed as one of the most ambitious infrastructure projects in the world and offers real potential for investors, manufacturers, traders and financiers from all over the world.

The initiative has two main thrusts: firstly, the Silk Road Economic Belt, which will be an overland network of road and rail links and pipelines. The belt will mirror roughly the historic Silk Road trading route and connect China’s east coast with Europe via a land bridge.

Five regional “corridors” will branch off the land bridge running to Russia, Turkey, Singapore, India and Pakistan.

Secondly, the 21st Century Maritime Silk Road is a complementary planned sea route that will have an integrated port and coastal infrastructure and link the South China Sea, South Pacific Ocean and wider Indian Ocean area.

These are clearly interesting times for overseas investors. The One Belt, One Road initiative will boost economic co-operation and investment among some 65 countries across three continents.

It potentially will cover about 65% of the world’s population, one-third of global GDP and one-quarter of all the goods and services the world moves, according to McKinsey & Co. The consultants estimate that after the project was announced, a whopping 1,400 contracts worth more than US$37bn were signed by Chinese companies in the first half of 2015 alone.

Big numbers, big money, big business

There will be challenges, of course. The route will pass through countries with myriad and diverse levels of political, credit and security risks. Security concerns, legal and regulatory challenges and political instability will vary widely along the 10,000 kilometre route.

A survey published last year by Beijing-based research firm the Centre for China and Globalization revealed that 71% of Chinese companies said that political risks topped their list of concerns about investing overseas. This, naturally, presents us with opportunities. The private political and credit risk insurance market offers competitively priced coverage that is flexible, robust, non-cancellable and quick to arrange. We are not constrained by any national interest content considerations that can sometimes restrict multisource export credit agency coverages and financings from time to time.

As part of our political and credit risk offering, we can cover not just trade risks but also risks associated with foreign direct investment, such as: expropriation, nationalisation or confiscation of fixed and mobile assets; be they equity holdings; shareholder loans and/ or dividends. Furthermore, we specialise in coverages for financial institutions, multilaterals and export credit agencies; either for specific projects and/or for non-repayment or debt default risks by a state or state-owned enterprises or even privately-owned companies; currency inconvertibility and non-transfer; and pre-shipment risks.

Private market insurers are the natural home for multi-source risks and we are keen to underwrite them.
Joe Blenkinsopp, XL Catlin

It is not yet certain how many of the projects along the route will be financed. What is certain is that most of the activity along the route will be tendered for by governments; with complex financings and multi-sourcing of products, goods and services central to many of the individual projects’ and contracts’ success.

Private market insurers are the natural home for multi-source risks and we are keen to underwrite them; often in co-operation with state export guarantee agencies who are often also fellow members of the Berne Union.

Insurers can help facilitate global trade by promoting best practice and standards in political risk and trade credit coverage, while still providing competitive coverage.

The private insurance market is willing and able to help investors, manufacturers, traders, financiers, export credit agencies, development financing and multilateral institutions navigate the risks, challenges and opportunities inherent in this modern re-opening of the world’s most historic trading route.