Wednesday, June 20, 2012

"In the current economic climate would political risk catastrophe bonds be viable?"

From Artemis:
The world’s financial markets seem to be in a continual state of uncertainty and flux thanks largely to the economic crisis in the Eurozone led by fears about Greece, Spain and Italy, concerns about debt in the U.S., a possible slowing economy in China, the spectre of a slowing Japanese economy and the threat of pretty much any other nation falling prey to the current economic gloom and uncertainty. So it’s no surprise to read in the news that companies are seeking out sources of insurance cover to protect them against the crisis.

The problem for those companies is that it’s particularly hard to acquire insurance against the risk of a Greek exit from the Euro, for example. Or try insuring your multi-national company against the total collapse of the Euro currency, it will be harder and much more expensive than you think.

Naturally the reason for the lack of options to hedge against economic disaster or financial collapse is because the risk of that happening has risen and so insurers stop offering cover, partially because they cannot reinsure themselves at sufficient levels to keep the sale of insurance viable.

Reuters covered the lack of political risk cover for Greek issues here and explain that a Greek exit from the Euro falls into a grey area of insurance cover, somewhere between political risk and trade-credit insurance. The unusual nature of the current economic situation has left insurers without a clear definition as to what cover they could offer and they certainly won’t have the limits available just on the off-chance a European nations economy imploded....MORE