Best Insurance Provider: Zurich

Runner-up: Marsh
Commended: Lloyds of London
2007 Winner: -

When the credit crunch pulled the rug from under the capital markets and sent many companies scurrying back to structured trade finance instead, it wasn’t just the trade finance departments at the major banks that got crazily busy, but also the insurance companies that support trade deals, both large and small.

Nevertheless, Zurich is still able to respond to most customer enquiries within 72 hours of submission, often much more quickly, and to offer coverage in approximately 150 markets. “We have positioned ourselves to be a leading political risk and medium-term trade credit provider and continue to support our brokers and ‘insureds’ during these times of uncertainty. We are leaders in the market with our ability to offer 15-year tenors for political risk coverage and seven-year tenors for trade credit, and have remained dedicated to providing this coverage,” says Dan Riordan, President of Zurich Surety, Credit & Political Risk.

Zurich has been particularly active in Ukraine, where it has backed a number of big deals, including the first public asset-backed securitisation project as well as the country’s second securitisation, where Zurich supported an $85.8m issue of Class A Notes, backed by car loans from Ukraine Auto Loan Finance No. 1 and originated by Ukraine’s own PrivatBank. “Zurich’s political risk coverage helped the bonds secure an investment grade rating from both Moody’s and Fitch. The Class-A notes were given ratings of Baa3 by Moody’s and BBB- by Fitch – well above Ukraine’s sovereign rating of Ba3 (Moody’s) and BB- (Fitch),” says Riordan.

“We also have a very good relationship with Overseas Private Investment Corporation (OPIC)” says Riordan. “Private insurance and public agency cooperation is essential when trying to get some of the more difficult deals done. A recent deal where Zurich and OPIC teamed up was to provide political risk coverage for a five-megawatt hydropower plant on the Weli River in south-central Sri Lanka. This hydropower plant helps Sri Lanka address a growing need for electricity while encouraging private sector investment in this industry.”

Riordan also expects to see an increase in projects related to ‘carbon credits’ and Zurich, therefore, has become an early leader in the market for providing political risk coverage for carbon credit deals. The global market for carbon credits is expected to boom, from $60bn in 2007 to $200bn by 2020, as it provides a market mechanism for pricing and valuing offsets to carbon-based pollution.

“There are also a number of risk management concerns in the carbon credit market,” says Riordan. “Chief among them is the political risk associated with projects in developing and potentially unstable parts of the world. Investors could face expropriation, nationalisation or confiscation of a project, its assets and the stream of carbon credits it would generate. Political violence or civil unrest could also damage a project or prevent it from operating effectively.”

Changes in regulatory approach could also undermine the global carbon trading market – it was, after all, invented as a result of the Kyoto protocol and could just as easily be changed or even shelved.

Finally, the developments occurring in so many emerging market economies means that there are a plethora of opportunities for political risk insurers. “I think we will see more capital-market transactions coming out of emerging-market economies. With these capital-market transactions on the rise in emerging markets there are increased opportunities to provide political risk coverage,” says Riordan.

In order to capitalise on these opportunities – and to provide a faster, better service – Zurich Emerging Market Solutions has opened offices in Beijing, Frankfurt, Miami and, a touch ironically, in Zurich, too. “These offices are in addition to our offices in Washington DC, Barcelona, Hong Kong, London, Paris, Sydney and Tokyo. We are committed to responding quickly to brokers and customers and these additional offices enable us to have a stronger presence in our markets,” says Riordan.

“We are leaders in the market with our ability to offer 15-year tenors for political risk coverage and seven-year tenors for trade credit, and have remained dedicated to providing this coverage.”

Dan Riordan, Zurich