By Nick Robinson, Head of Political and Credit Risk HDI Global Specialty SE – UK
What is Single Risk Credit Insurance?
Very different from whole turnover trade credit risk which covers a broad portfolio of buyer default limits.
Individual assessment of risks and obligors.
Designed to protect specific lending and financed projects such as infrastructure, power and energy.
Often bought by Financial Institutions to support their lending.
Political risks cover in emerging markets can be included.
While organisations deal with the short-term impacts of a global pandemic, they are also starting to plan for the longer term.
For businesses and their financial backers who have the appetite to drive forward, confidence will be fundamental to success. It is in this area that single risk credit insurance can facilitate and enable the green shoots of growth.
Have we been here before?
Many are comparing the current situation to the Great Depression in the 1930s and how major infrastructure projects kick-started the economy. President Roosevelt underpinned the recovery in the US with a massive infrastructure programme. There were in excess of 100,000 projects, building everything from roads and public buildings to dams and hydroelectric power works.
More recently, the Chinese ‘One Belt, One Road’ (OBOR) infrastructure scheme, launched in 2013, has shown the scale and importance of major projects. It’s estimated that OBOR affects 60% of the world population and 35% of the global economy. These are big numbers and it is not just the Chinese. The UK government has also weighed in with a £5bn capital investment package promising to replicate Roosevelt’s scheme and ‘build, build, build.’
The backdrop of these state-backed programmes could also be the catalyst for other capital providers, both public and private, to support projects to drive innovation and both economic and social change.
So, what will need to be covered?
In the broadest sense, infrastructure includes a range of industries, and the definition of economic and social infrastructure has changed considerably in recent years. There are some industries that have come to the fore through the pandemic where there will be a particular focus. Here are two:
1. Data Centres – most of us are now familiar with Teams, Zoom, and remote working. The pandemic has introduced us to tools that, frankly, were little employed before. There is also evidence that the drive to home working in the future will become the norm. Many employers and employees are ready to embrace a different type of working. One of the consequences of this will be a growth in data centres around the world to create and protect truly global connectivity. Rather than employees being concentrated in one area, they will be spread across multiple locations. The infrastructure required to support this has seen commentators suggest that there will be a boom in network expansion and resilience and the resultant growth in data centres. There is expected to be significant construction around the globe to meet demand. This demand will need to be supported by significant capital and bespoke credit insurance to match.
2. Renewable Energy – damage to the planet because of global warming has been brought into greater focus during the pandemic. Headlines from around the world highlighted how lockdown had improved air and water quality from São Paulo to Delhi. This could well be the catalyst for an expansion in the renewable energy industry. The World Economic Forum is predicting that it will be a ‘game changer’. In less than 10 weeks, the USA increased its renewable energy consumption by 40%, India by 45%, and Italy, Germany, and Spain set new records for variable renewable energy integration to the grid. Like Data Centres, these programmes will require considerable investment and insurance cover.
As we emerge and begin recovery, structured credit solutions will be crucial in enabling growth. From asset protection to political risk cover, a broad but bespoke cover will be needed. Finance Providers will need the confidence that their lending is covered, particularly if a second Covid-19 wave affects the world economy. A flight to quality is likely and specialist experience will be needed by all parties. This is why we are prepared to play our part and collaborate to face this brave new world.
If you would like to know more about how HDI Global Specialty can help you with Political & Credit Risk insurance, please contact the team.