Risky times

According to one index of world political risk, these are particularly perilous times. A look at the morning paper is probably sufficient evidence of the accuracy of that assessment.

Yet, according to executives of Alliant Emerging Markets, the political and credit risk insurance broker responsible for the index, despite the high level of risk, it remains a good time to be a buyer of political risk insurance.

Chicago- and New York-based Alliant Emerging Markets’ Political Risk Index rose nearly 5% over the past 12 months, the largest 12-month increase since the Sept. 11, 2001 attacks, according to Michel Leonard, the firm’s chief economist and head of consulting. What’s more, the index currently stands at an even higher level than immediately after Sept. 11, Mr. Leonard said.

The increase has been driven primarily by rising expropriation risks in Latin America, regulatory uncertainty in Central Asia and worsening credit conditions in Eastern Europe and Southeast Asia, according to Alliant.

That combination of political risk, credit risk and market risk “have driven the index up to the strongest increase of any 12-month period since Sept. 11 and to a point where it’s at the highest level since Sept. 11,” Mr. Leonard said.

Given the current climate of risk, “We’re seeing more and more companies taking systematic steps to manage their political risks,” said John Minor, president of Alliant Emerging Markets. “We’re also seeing a rise in companies’ interest in political risk insurance again.”

While there is a perception of increased political risk in emerging market countries–and even claims being filed against political risk policies, “there continues to be a soft market in the political risk market and we don’t see that abating any time soon,” Mr. Minor said. “Barring a Sept. 11-type event happening, we don’t see that trend reversing.”

There are some exceptions to that soft market, notably power projects and exposures in Venezuela, but, “If you’re a risk manager, now is a good time to be buying political risk insurance,” Mr. Minor said.

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