Q.1: Your career spans several decades and long stints with both public and private sector underwriters. What are the biggest changes you have seen?

In my view, the most dramatic change has been the rise of the private market and the relative diminishing importance of the public sector. I think that this has resulted from two primary factors. First, as more individuals became familiar with the products and the risks through working in government institutions, they were able to convince the controllers of capital that the risks in both political risk insurance (PRI) and trade credit insurance (TCI) could be prudently and profitably underwritten. Second, in recent years, the risk of purposeful adverse government action, such as expropriation or unreasonable foreign exchange restrictions, has decreased in relative importance, making the authoritative weight of a government insurer less important in avoiding problems and working through claims matters.

Q.2: How did you find the claims process differed when you went from OPIC to Citibank and to Exporters?

At OPIC, we could make effective use of the US Government for dealings with foreign governments. The State Department was particularly supportive with respect to expropriation claims, and the special currency arrangements permitting OPIC to sell foreign exchange acquired from inconvertibility claims to the Treasury Department was extremely beneficial. At times, information obtained from the CIA, not available to the general public, was also quite helpful. Working in the private sector, I have also been able to utilize US Government services from time to time, but not in the same authoritative manner as when the Government is speaking for one of its own agencies.

Q.3: Is the boundary between PRI and TCI disappearing?

There has always been a substantial overlap in the two in insuring governmental entities against contract default, particularly as “government entity” has been broadly defined by the private PRI market to include parastatals. The pure political risks – such as expropriation, currency nontransfer/inconvertibility, government interference in contracts, political violence, etc., remain viable, separate products. What is changing is (1) the tendency of insureds to simply purchase comprehensive coverage on their exposures and not limit the coverage to PRI risks, and (2) the tendency of insurers to offer both products. The trend of insureds to opt for comprehensive coverage could reverse with a firming of rates, but I suspect that insureds will remain inclined to seek the broader insurance.

Q.4: As non-honoring and non-payment coverages assume a greater role in “PRI” portfolios and traditional currency inconvertibility, expropriation and political violence coverages assume an apparently diminishing one, what are the implications?

In general, I think that the political violence coverages are continuing to be of great interest and that there will be some refining of definitions and a great deal of negotiating of terms of coverage. Both insurers and reinsurers will be examining their underwriting attitudes toward this class of business. Expropriation and currency inconvertibility will continue to be of diminished interest.

Q.5: What are the biggest challenges confronting the PRI marketplace today?

Low rates of return. Even if the risk of loss is low enough to justify the rates on exposure, the other factors affecting the capital that must be placed against the exposure make it difficult to earn a sufficient return.

Q.6: Are currently low premiums sustainable? Is there too much capacity in the marketplace?

Given the dearth of solid public information in this area, these are difficult questions to answer, except by intuition. Judging by the day-to-day bidding on risks coming into the market and the number of players in the process, there may be too much capital chasing the risks. I suspect that we will eventually see some consolidation in the number of participants and a firming of rates. I also think that we are at a low point on the perception cycle, and that there will be an event or events that cause a general increase in risk perception and rating.

Q.7: In a default situation, to what extent are the interests of insured banks likely to coincide (or not) with those of the insurer? Are there areas of potential conflict?

In general, the banks tend to take a no-nonsense approach toward debt recovery and are less likely to be interested in preserving continuing relations with debtors than are other creditors, who may have prospects for future business in mind. In that sense, the banks are usually well aligned with insurers. On the other hand, the banks are often more concerned about the use of their names in public litigation and exposure to lender liability. That can somewhat complicate the recovery process. Also, because of concern for overall government relations or public relations, where a bank has a large presence in country, bank interests may diverge from those of the insurer if the loss in question is relatively small. Overall, however, I do not think that these are major concerns for insurers.

Q.8: What’s ahead for Exporters, especially in PRI?

Exporters has always been in the PRI market in providing comprehensive coverage on government entities. PRI, however, was never emphasized, and we did not focus on the pure political risk products. Exporters recently decided to make a concerted thrust into PRI and has engaged staff in London and the US to oversee the initiative. The initial response to this initiative has been very favorable. Even though the PRI market is currently soft and there are many players, Exporters is confident that it will be seen as a very viable market for the PRI line. Over the past couple of years, Exporters has been engaged in an expansion of its geographical presence. A full UK license was obtained in January of 2006, followed by an EU “insurance passport” in 13 other countries. Rep offices were established in Hong Kong and Singapore, and Exporters is in the process of applying for a full license in Singapore. A commission agent was retained in Mexico. Concurrently, the Exporters staff has been greatly expanded. All in all, the company has been very expansion minded since control shifted at the end of 2004 ■


Richard Stern recently retired as General Counsel of EIC Corporation (Exporters), ending a 32-year career in the trade credit and political risk insurance industry. Prior to joining Exporters in 2001, he had been General Counsel of Citicorp International Trade Indemnity for over 14 years, and prior to that, Assistant General Counsel and Deputy General Counsel of the Overseas Private Investment Corporation. He thus has witnessed the evolution of the marketplace from several vantage points, and established himself as a preeminent legal authority in his field.