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Chapter 11 Casualty reinsurance 11/29

Activity
What political risks can you imagine resulting from these landmark events?
• The dismantling of the USSR.
• The ‘Arab spring’.
• The Syrian conflict.

J3A Underwriting considerations
• Terms of cover.
• Duration of risks according to types of transaction or investment.
• Limitation of insurable countries.
• Maximum country limits.
• Standard exclusions.
• Relevant reporting requirements, depending on duration and type of risk.
• Use of market standard clauses.
• The reinsured has to have experience in the political risk field by the underwriter and/or the company.

J3B Types of reinsurance purchased

Specialist political risk underwriters have annual treaties. In addition, they may arrange facultative
Specialist political
reinsurance to cover exceptional values or concentrations, such as a state-sponsored scheme to risk underwriters
encourage trade links. There are company leaders in this market as well as Lloyd’s leaders and have annual treaties
frequently they write covers on syndicated slips. The reinsurer should be aware of this practice.
Preference is for proportional reinsurance as there are potential catastrophic accumulations that could
arise, e.g. a country nationalising an entire industry such as oil and generally, by the same measure,
quota share is preferred to surplus treaties. In order to control the frequency risk, some political risk
reinsurers only seek to become involved on an excess of loss basis.

J3C Standard political risks exclusions Reference copy for CII Face to Face Training
• Any loss arising from insolvency or financial default of any party or person whatsoever, except where
the insured transaction is secured by a government-owned buyer or the central bank of the foreign
country, or where the official foreign exchange authority refuses to give leave to make a foreign
exchange transfer by revoking a previously agreed licence.
• Credit risks associated with transactions with private entities, unless they are unconditionally
guaranteed by a public entity, or the payment is secured by an irrevocable letter of credit from a
government owned bank.
• ‘Five Great Powers’ war risk exclusion.
• Nuclear detonation and ionising radiation exclusion.

Question 11.8
Would you expect losses resulting from the actions of animal rights activists or those campaigning for the rights of
unborn babies to be covered as political risks?

J4 Fidelity guarantee

The object of this class of business is to provide cover against loss by reason of the dishonesty of
Provide cover against
persons holding positions of trust, while for some guarantees the protection goes beyond dishonesty to lossbyreasonofthe
cover losses caused by an error where, say, an estate of a deceased person is wrongly administered by dishonesty of persons
holding positions
reason of a mistake of law. of trust Chapter

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