Much emphasis has also been placed on making Incoterms easier to understand, and for that reason a few key changes have been made.

For a full summary of the changes, please contact your usual broker at FP Marine Risks or email info@fp-marine.com

Here is a brief overview of some of the key changes:

Two categories of rules
The rules now come in two categories:

1. Rules for any mode of transport
2. Rules for sea and inland waterway transport

Number of ‘D’ terms reduced
DAF, DES, DEQ and DDU have all been abolished and replaced with:

DAT – Delivered at Terminal (replaces Delivered Ex Quay)
DAP – Delivered at Place (replaces Delivered At Frontier, Delivered Duty Unpaid and Delivered Ex Ship).

A fifth ‘D’ term, Delivered Duty Paid, remains unchanged.

Insurance
The rules and terminology relating to insurance for the transport of goods have been harmonised with the 2009 Institute Cargo Clauses.

Security
The rules now provide specific obligations for the buyer and seller to supply the other party with information or to provide assistance in obtaining security related import, export and transport documentation.

Terminal Handling Charges
The rules have been amended so that the risk of the buyer being charged twice for terminal handling costs is minimised.

E-communications
The new rules allow for paper communication or an “equivalent electronic record or procedure” where agreed or customary, “customary” meaning that in some cases parties will be unable to refuse electronic communications (for example, email).

String Sales
Previously the Incoterms meant that the seller had to theoretically ‘ship’ the goods, notwithstanding that the goods were being bought and sold on the high seas. The new rules allow for a seller to ‘procure goods shipped’ and not just to ‘ship’ the goods, in line with existing commercial practice.

On the face of it, the global economic slump created conditions that should have left marine insurance clients bearing the brunt of a hardening market and spiralling premiums.  But according to Mr Philip Bilney, Group Executive Director, FP Marine Risks, not only did that not transpire, but it is not likely to happen in the foreseeable future either.

At the recent IUMI conference in Hong Kong, Ms Deidre Littlefield cautioned that whilst the global economy may be through the worst of it, there were still signs that insurers in Asia would need to focus on “underwriting, underwriting, underwriting”.

This would suggest that underwriters should be seeking universal rate rises, higher deductibles and self-insured retentions, tighter conditions and the imposition of further risk management requirements for their Assureds.

However, from an Asian marine insurance perspective, it is apparent that this has not happened and nor will it.

There are three key reasons for this – Asia’s quick economic recovery as demonstrated by the rebounding trade figures, investment in Asia and the subsequent capacity it has brought with it, and finally the ever-maturing environments in which the assureds are operating and thereby lowering their associated risks.

Recovery

There is no doubt that Asia is recovering quicker than Europe or North America.  The IMF has forecast GDP growth of 4% worldwide, but 10% in China and 5.3% in Asia overall for 2010.

The world seems to be recovering from the recession but whether it is a sustainable recovery is yet to be seen.  Recent figures from the World Trade Organisation show that the downward trend in trade experienced worldwide during 2009 has come to an end, with world merchandise trade up 25% in the first quarter of 2010 when compared with the same quarter in 2009.

Importantly, intra-Asian trade has played a key role in sustaining growth within the region.  The WTO has recently reported that the trade flows within Asia have rebounded more strongly than those of developed economies and believes this is due to trade within the region.

China – An engine of growth

Furthermore, China’s imports grew at 16%, twice as fast as its exports (8%), suggesting that the country’s fiscal stimulus package has benefited trade within Asia as a whole.

China is now the world’s largest exporting country and probably stronger than ever relative to the West as we emerge from the financial crisis.  Unless something catastrophic happens, we expect to see the continuing, phenomenal growth of that economy.

The benefits of Asia’s growth in GDP and trade will of course filter down to the shipping, trading and maritime industries as a whole.  There is no doubt that because of this, Asia is certainly the most exciting place in which to be writing insurance business at the moment.

Investment and capacity

Accelerating a trend going back at least two decades, the last two to three years have seen an uninterrupted, headlong influx of new insurance capacity into the Asian market.

I am therefore not surprised that we are seeing continued investment into Asia.  There are now 15 Lloyd’s syndicates operating in Singapore and another five in Hong Kong plus 11 independent coverholders, most of which write Marine.

International insurers have either entered the market or dramatically increased their underwriting capacity.  With the new Asian-domiciled start-ups and increases in existing capacity, according to our own estimates, total Hull and Cargo capacity in Asia is today around three times that of just five years ago with no signs of abating. We expect to see more international insurers active in Asia before the year is out.

Whilst the capacity available is considerable, Asian marine underwriters now have unprecedented levels of authority at their disposal. US$100 million Project Cargo lines and US$25 million Hull lines are no longer unusual (without reference to treaty underwriters or to an overseas head office).

This trend has given Asia a self-contained marine market capable of supporting the great majority of insurance exposures arising in the region.  No longer is there an automatic need to seek capacity or expertise in London or Europe because it can all be found here. Insurers are realising this and repositioning themselves accordingly.  If they want to be part of the Asia Pacific Century, what choice do they have?

The developing world is highly developed

Many of the major cities in Asia enjoy world-leading infrastructure – ports, airports, roads and railways – which operate with modern technologies and are expanding daily.

Asian-focused logistics companies are highly efficient and move cargo through the system seamlessly and – in their own highly competitive environment – with ever greater regard to the safety of their customer’s goods.

Losses are being minimised throughout the supply chain as newer technologies and a continual push for international competitiveness have helped improve safety records.

Meanwhile, the shipping industry is ever-more regulated for the benefit of seafarers and the public alike.

Benign and sophisticated claims environment

The combined benefit of this is a relatively benign claims environment.  There have been some increased cargo losses in particular areas and circumstances, but on the whole we believe this downward trend will continue.

According to IUMI, total losses have, on the whole, followed a downward trend over the last 30 years.  Whilst the costs of some claims have increased, repair costs for damaged vessels have largely fallen, and with fewer ships in service losses have been muted.

Claims are an inevitable part of insurance, but when losses do occur, the Asian claims infrastructure is ever-improving.  Every major adjuster, or international law firm, is heavily represented in the region and local expertise is growing.

Market with credibility and strength

Not only are the risks getting better, they are more plentiful too. The new capacity in Asia is addressing a growing pie, as the economic data demonstrates, but what it does not reveal, and what we are witnessing, is that more marine insurance business is being attracted to the region’s markets.

Asian buyers now have better insurance options here than overseas, and foreign companies trading in Asia are more easily convinced by the international insurance brand names which are now on offer locally.

A number of international insurers have brought their existing Asian books with them and further still many Asian underwriters are increasingly writing non-Asian business.  This has created a market with credibility and strength.

Good news for Assureds

The world recovery, which is proving to be strongest in Asia, combined with plentiful capacity and better risks means it is unlikely the Asian marine insurance market will harden.  Whilst no one believes we are truly out of the woods just yet, there is no reason to assume that insurers in the region will do anything other than carry on being competitive.

As more underwriters continue to build up their regional presence in Asia, the need to increase rates and narrow conditions is suppressed.

An abundance of options for Asia’s Assureds combined with a determination on the part of underwriters to increase their market share has naturally created a competitive environment.  But, with continued investments in infrastructure and an increase in trade volumes combined with a reduction in claims, insurers in Asia understand that underwriting, underwriting and more underwriting does not need to translate into rate increases and a tightening of conditions.

Instead, underwriters in the region can utilise their local knowledge to write more business and a greater premium volume through a broader spread rather than increasing premium through increases in rating.

The EU sanctions ban European companies from investing in Iran’s oil and gas industries, while restricting trade and financial links including barring any European company from providing insurance services to Iranian entities.

The EU sanctions go further than the UN sanctions currently in place.

This has subsequently had the effect of a large majority of EU and UK insurers declining risks that involve regular trade to Iran, carriage of goods to Iran and/or risks that are known to have an Iranian entity involved in the operation of the vessel.

Notwithstanding the parameters of the sanctions, underwriters are being advised to take a very cautious position and are already including the new JH Sanctions Exclusion Clause in all policies.  In addition, the treaty market is starting to impose mid-term amendments which will translate to all original policies being issued with the Sanctions Exclusion Clause included as a matter of course.

Companies trading into Iran, trading with Iranian entities and/or chartering vessels to Iranian companies (notwithstanding the nature of those trades) should consider their position carefully as cover may not be available for all or part of the trade.

We would urge companies involved in this trade or considering becoming involved in trading to or contracting with Iranian entities to seek confirmation from their insurer in advance that cover will continue unaffected.

For anyone who wishes to discuss their insurance situation with FP Marine Risks, please contact your usual broker or email info@fp-marine.com

Clyde and Co have released the following information which provides a good overview of the situation: http://www.clydeco.com/attachments/published/19085/Iran%20EU%20sanctions%20update%20July%202010.pdf

The Rules have been designed to regulate marine cargo liabilities internationally and may ultimately replace the Hague Rules, the Hague-Visby Rules and the Hamburg rules in those countries that are signatories to those conventions.

The sixteen states who signed were Congo, Denmark, France, Gabon, Ghana, Greece, Guinea, the Netherlands, Nigeria, Norway, Poland, Senegal, Spain, Switzerland, Togo and the United States. China is a public supporter of the Rules but is not yet a signatory, whilst New Zealand, the United Kingdom, Singapore, Bulgaria, Slovenia, Japan, Finland and Crotia have not yet signed the Convention.

20 signatories are required for the new rules to come into force, and whilst the USA has been very vocal in its support of the rules, the European Shippers Council (amongst others) believes that the new rules could put shippers in a worse position than they were prior to the introduction of the original Hague Rules.

The Rotterdam Rules have been six years in the making, and are argued by some to be necessary to reflect the recent modernisation in trade practices as well as provide for industry needs in respect of cargo moving door-to-door.

Container leasing companies are specialized, capital intensive and often highly-geared operations. For many years, they have relied on a handful of insurers in the Marine market to provide the insurance they need to satisfy the requirements of bankers and financiers. One by one, insurers have been pulling out of this sector because of the increased losses and the uncertain environment in which shipping companies are currently operating. As a result, some container lessors are facing difficulties in arranging or maintaining finance facilities.

However, by accessing the Credit Insurance market, we have been able to arrange a more focused product in a form familiar to financiers and directly related to the Lessor’s actual receivables. It offers an effective vehicle for risk transfer and is generally more cost-effective than the standard marine policy.

If you are interested in learning more about this insurance, please speak to one of our Trade brokers who can provide you with all the necessary information.

Minimising the Risks for Charterers
Avoiding the area entirely will limit a vessel’s exposure to the risk of piracy although, as in the high profile case of the Sirius Star, it is not always successful.  Sirius Star had chosen to sail via the Cape of Good Hope, but was still captured by Somali pirates over 450 nautical miles off the coast of Kenya.

Moreover, significant deviations are a costly and time consuming alternative for Charterers, who pay hire costs for the additional time taken to sail past the Cape.

In the event of a hijacking, the vessel could remain on hire for the duration of the detention with any off-hire likely to lead to a dispute.  The average period for vessels to be detained is six to seven weeks, so the Charterers’ exposure to hire charges whilst the vessel is detained is significant.

Charterer’s Piracy Trade Disruption Insurance ensures that if a vessel is captured and the Charterer remains liable for the hire, the Charterer is covered for that payment whilst the vessel is seized.

The Cover
Importantly, the cover is available on both a single breach and annual basis.  This allows Charterers to declare vessels for the specific period, whilst transiting or calling at ports in high risk areas.

The premium is based upon the limit of liability required, the number of calls or transits and voyages contemplated and is fully supported by ‘A’ rated London insurers with a proven track record in specialist marine insurance.

___________________________________________________________________________
The above information is intended solely as a summary of the cover – for full details regarding the conditions of cover, exclusions and definitions, please email or telephone your usual FP Marine Risks contact or call the Hong Kong office on +852 2544 3410, the London office on +44 (0) 207 397 4920 or email info@fp‐marine.com

With growing trade volumes, vessel sizes and government legislation, supply chain managers face increasing risks and liabilities in their industry. Insurance is an important risk management tool, but one that has yet to be fully utilised in Asia. For an effective insurance purchasing strategy, supply chain managers should be aware of the changing risk exposures, the breadth of cover available and the long-term benefits that insurance provides by protecting profitability.

Supply chain management, by the diverse nature of the business, is exposed to constantly changing and, in most cases, increasing risks and liabilities. Depending upon the geographical spread of the business, those risks are likely to range from political risks to business interruption and the more specific threats of piracy or theft.

The insurance market has always been keen to respond to these varying and changing risks, not only with more sophisticated products, but also greater expertise and knowledge. In the increasingly competitive environment that the trade insurance market has become, differentiation is a key driver for insurance solutions that can dovetail with existing covers and/or risk management devices already in place.

What remains constant and critical is for supply chain managers to be able to identify the risks and react to them positively. That requires a high degree of both understanding of the exposures as well as the resources required to implement the required risk management procedures. As part of that process, the involvement of the insurance market and its knowledge base can be invaluable not only to determine the possible solutions available, but as a cost-efficient external resource.

Changing Exposures

Supply chain managers have become more risk averse in recent times due in part to the falling cost of insurance, but also due to an increase in the understanding of risk and the constantly evolving legislative environment.

A gradual, but steady, improvement in the understanding of the liabilities of service providers and the courts’ willingness to find new areas of liability or affirm previously held views has focused more attention on the involvement of insurance as a risk management tool. But, is there sufficient focus or understanding on this area?

There can be no doubt that it is difficult to maintain adequate knowledge of new risks and the evolution of existing risks. As the size and demands of the industry continue to develop, both in Asia and globally, so too does the list of potential losses that might arise.

One such example is the risk of accumulation brought about by the increased volume of trade. Accumulation arises where a series of shipments are in the same place at the same time, whether that be a warehouse, vessel or other conveyance.

For supply chain managers, this is a difficult exposure to monitor on an ongoing basis, yet can give rise to a significant underlying exposure in the event of just one single incident. Whereas this used to be predominantly the preserve of static risk insurers, due to the progress of, specifically, the shipping sector of the industry, it now has a broader effect across the supply chain.

As the size of vessels increase to meet the cost efficiency demands of global trade, so does the possibility of an accumulation of risk on those very vessels. The capacity of the ‘Emma Maersk’ and her 11,000 twenty-foot equivalent units (TEUs) is a forebearer of things to come. It is perhaps noteworthy to compare her with the recent losses incurred by cargo interests alone on the ‘Hyundai Fortune’ of potentially USD75m and the ‘MSC Napoli’ in the region of USD66m, both of which were unavoidable losses from the point of view of the supply chain managers unlucky enough to be involved.

But the issues of accumulation do not stop once the cargo is discharged from the overseas vessel. As trade volumes continue to rise, specifically to and from China, so consolidation and deconsolidation points become more congested and/or capacity increases.

If we add to the equation the risks of port congestion either through natural or man-made causes such as the recent strike in the US Pacific Northwest, those exposures can result from a number of causes making them difficult to predict.

Being able to calculate these exposures, with a degree of accuracy, requires a high level of risk management capability, which may not be viable within certain areas of the supply chain. It is, of course, difficult enough to manage risk successfully where all the information is available; where that information is not available, it becomes a considerable challenge.

The result of this is that there is only a limited level of protection for even the most sophisticated risk manager. Offsetting risk in the form of insurance should, therefore, play a pivotal role in the overall risk management strategy.

Insurance in Asia

To this end, the insurance market in Asia continues to grow as more and more insurers enter the arena, either as additional offices to bases in London or the US, or Asian headquartered and capitalised. The London and Lloyd’s market is and will remain the epicentre for the complex risks that the supply chain management industry requires, but there is significant shift in knowledge as insurers place expertise on the doorstep of the risks they write.

Indeed, Lloyd’s itself now has hubs in Singapore and Shanghai, allowing Lloyd’s markets to utilise their capital based in London to set up at minimal additional cost in Asia. While the spread of insurance placements is often global, insurers are seeing a real benefit to a presence geographically alongside the risks they are writing.

This provides insurance buyers in the supply chain sector with the services and knowledge base that, all too often, remains under-utilised. While the insurance market is keen to provide this support, generally speaking it has not been considered a traditional option for the supply chain industry. This, though, needs to change if the supply chain sector is to benefit from all the available tools, including insurance, and meet the risk management challenges that Asia will continue to present.

Regulatory and Legislative Environments

The concern, however, has to be that Asia’s trade volume is increasing at a pace considerably in excess of other markets, while regulation and legislation in many of the region’s countries remain in their  infancy. However, this has not dampened the expectation of clients of the supply chain industry in the region, who demand the highest levels of service.

Given the current pace of growth in countries such as China and India and the relative lack of focus on ensuring that the regulatory environment keeps pace with that growth, the protection of that exposure becomes ever more difficult. The changes in regulatory practice will take some time to gain traction and is, perhaps in part, contrary to the desire of those who wish to reap the benefits of the regional growth in trade.

This is likely to continue to have a negative effect on the ability of the supply chain industry to manage their exposures in the developing economies for some time to come.

However, the news is not all bad as insurers have an equal desire to be involved in trade to those regions and, to do that, they want and need to understand the risks involved. This is, in part, the reason for the increase in focused expertise being brought in or propagated in the region by insurers.

To properly understand the environment, they want to be accessible to their assureds and to the risks they face. Whether this proximity will give rise to a consequent increase of insurers’ involvement in the risk management strategies of the supply chain industry remains to be seen.

At present, there remains a relatively low penetration of insurance purchasing in Asia but a change is unlikely to be driven by the regulatory bodies, even with the full support of the supply chain management sector.

Ultimately, an effective risk management strategy needs to be seen as an asset to any company before the costs involved will be accepted. That will require a fundamental change in thinking in some sectors regardless of the regulatory environment.

Premium versus Risk Management

An effective risk management strategy that is able to react to new risks and control existing ones can expect to have a long-term beneficial effect on the insurance costs.

When this is compared to the falling cost of insurance even as trade levels continue to climb to some of the highest levels ever achieved, the actual costs of risk management can be eroded, in some cases, to a large degree.

This also gives rise to more specific options within the insurance programmes to create greater premium efficiencies as the risk management strategy provides more predictable results. Increases in self-retention of risk, for example, can mean a beneficial reduction in premium.

Other, significantly more sophisticated, products start to be made available as the risk management strategy becomes a key aspect of the profile of the insurance buyer. The equation between a reduction in claims experience and a reduction in premium becomes weighted in favour of the insurance buyer with a history of successful risk management.

The Impact of Unused Risk Management Tools on the Balance Sheet

Experience shows that, even where a strong risk management structure is in place the understanding and knowledge may not be filtering across to operational levels. This will reduce the ability of companies to extract the most from their risk management strategy and, ultimately, will have a negative effect on profitability. Put in insurance terms, opportunities to recover losses from insurers are simply not identified on an all too often basis. This can be either due to a lack of knowledge of the breadth of cover available or, perhaps, a perception that making insurance claims will increase premiums in the future.

With an otherwise effective risk management strategy in place, it becomes even more important. The reimbursements not only provide financial recompense, but provide the insurer with valuable knowledge of the operational or commercial risks that are occurring. More importantly, it tests the insurance to ensure that it responds as it should do when it is required. The cost benefit to the assured is clear, but the long-term risk management benefits of stressing the insurance purchasing strategy are perhaps not as obvious, until a significant loss arises.

The challenge for credit and political risk insurers is considering the numerous factors that affect the markets in which they operate. Global trends affect the demand for business and local issues determine how they structure cover for their clients. Oliver O’Connell looks at a snapshot of the Asian credit and political risk insurance market and the wider external factors and detailed internal issues that affect it.

“The first trend to take into account in the region is the increase in intra-Asian trade. This has been increasing over the last few years, and while business between Asia and Europe and North America has always been there, intra-Asia business is certainly a much greater percentage of the total than it was two or three years ago,” observes Jeremy Hampshire of Hong Kong-based Trade Line, the specialist trade credit and political risk insurance broker.

“The second trend, which follows on from that, which is obviously a global trend – is the movement from LC to open account. In Asia this has manifested itself as European and US buyers saying that this is the only way we are going to trade from now on. If you combine these two trends you end up with higher credit and political risk, especially credit, for companies within Asia, and their trading. It doesn’t matter where they’re trading, but this has led to an increased requirement for trade credit insurance,” he adds.

In terms of the most affected trade sectors, the trend began a few years ago with the transition to open account in the electronics industry. Following on from this was also a shift in the textiles industry amounting to approximately 65% of transactions by early 2005. Other trade sectors showing a similar trend include plastics, chemicals, steel, and some soft commodities.

This is also leading to a trend in which payment terms are being pushed out. Starting with a move extending payment terms from 15 days to 30, this has eventually been pushed as far as 60 days. These companies now have higher accounts receivables on their balance sheet for the same amount of business than they did one or two years ago. This means higher risk and supposedly more trade credit insurance opportunities.

In the last 18 months underwriters report to have seen a 25% increase in business, if not 30% in some areas, and in line with global trends, brokers have seen a 25-35% increase in enquiries over the same period.

Increased competition
Greater demand for insurance has seen an increase in interest in Asia from insurers, with a number of new office openings, cooperation agreements and new initiatives. Says Hampshire: “The main brokers have never made a big commitment to this class of insurance. They may have done so in Singapore for example, but they don’t have a significant presence. So things have been left largely to individual operators.”

In March, Trade Line entered into a strategic alliance with Cosmos Services Company giving the company access to a network of offices across Asia, as well as in London. For Cosmos, part of Japan’s Itochu Corporation, the aim of alliance is to expand its trade credit and political risk insurance field to better serve its client base. Trade Line still operates as a separate independent unit but now is a greater presence within the industry.

On the more specialist side of the industry, FP Marine Risks, the Hong Kong-headquartered specialist marine insurance broker, has launched a new trade finance initiative aimed at providing specifically designed marine insurance products for the industry.

Philip Bilney, executive director of FP Marine Risks, says: “There’s no doubt that in Hong Kong and Asia there is a growing need for trade financing banks to protect their marine exposures. By launching this initiative, we are leveraging our existing portfolio of specialist marine insurance services to address this need.”

Spearheading the new initiative is Audrey Poon, a broker with 16 years of experience in the insurance industry who joins FP Marine Risks as manager, trade finance. Having spent the past decade specialising in marine cargo insurance for trade financiers and international commodity traders in Singapore, Poon is aiming to help similar companies in Hong Kong minimize their risk in what FP Marine Risks see as an increasingly volatile market.

In the underwriting section of the insurance business, the major players are increasing their presence in the region. Atradius is establishing an office in Hong Kong at the moment and is investigating obtaining a license for China as well. Bermuda-based Exporters Insurance Company is establishing a representative office in Hong Kong in what is described as a prelude to the expansion of Exporters’ activities in the region through growing contact with local brokers. It is expected that Ace will also look to develop in Asia, perhaps using Japan as a platform for expansion into the rest of the region.

Hampshire adds: “A lot of the other majors are here already so perhaps some of the niche players will want to increase their presence here. We certainly get more visits of representatives from the majors coming through than three or four years ago. The general feeling is that there is more business going on in Asia and Latin America than elsewhere, and given the situation in Latin America at the moment, Asia seems preferable.”

In conjunction with this increased interest in the region is an increase in people moves within the industry. There is a level of opportunity, but with factors such as the cultural difference between Europe and Asia it is difficult for companies to simply parachute someone in and expect them to be able to create new business in a short time. Underwriters claim that with a lack of ‘home-grown’ specialist brokers, they have to spend more time on direct marketing and direct sales and cannot just rely on broker channels to drive business.

Active markets
In terms of the markets within the region that are driving business, China, unsurprisingly, leads the way in generating enquiries. Business coming from China is more for credit insurance rather than political, but most other active markets in the region are weighted more in the favour of requests for political risk coverage. For example, the Philippines, Indonesia and Vietnam all generate more political than credit insurance requests.

The challenge of low pricing that has featured across the world has been especially prominent in Asia with rates falling dramatically in most countries. Of the above mentioned countries, Indonesia and Vietnam have dropped quite significantly, though the Philippines and China have maintained similar pricing levels to the recent past.

Indonesia is of particular concern in that some brokers feel that margins have dropped to the extent that perhaps things have gone down by too much against the potential risk in the country. Mining has proved an especially strong sector for political risk insurance, Martin Phelan, head of political risk for the Pacific region at Marsh in Melbourne, comments: “We’ve done a number of transactions in lease and asset finance for mining equipment. For example in the coal sector in Kalimantan, Indonesia, where the client is supporting international contract mining companies by using asset finance as an alternate structure to pure project finance or traditional on balance sheet debt.”

In this instance the mining company required limited recourse project finance to develop $300 million copper-gold project on which it had completed a bankable feasibility study. The project is located in a sparsely populated country with limited infrastructure – physical, commercial and legal – very low income levels and virtually no history of foreign investment or financing other than that provided by development agencies. The mining laws and regulation that did exist was untested at the time.

Understandably the banks were concerned with the risks involved – the stability of key property rights including government commitment on issues such as royalties and the right to export minerals, the reliability and transparency of the legal system and the remoteness, and therefore possible vulnerability, of the project.

Marsh brought together a syndicate of political risk insurers to ensure that commercial lenders had the appropriate coverage against a range of actions and events that could affect the project.

High commodity prices across the globe over the last two to three years have been driven this mining and oil and gas boom causing a reasonably pronounced upturn in new projects and investment. This is channelling into copper, gold and other base metal mine development and the consolidation of project financing schemes in addition to new exploration and extraction of oil and gas deposits.

Phelan highlights the opportunities available for insurers: “A lot of the transactions we’ve been involved in are still creating further opportunities, medium to large project finance-based copper and gold projects, including in some new countries such as Laos. The commercial market facilitated the entry of foreign investment into the country over the last three years, and by the close of this year, total foreign investment over the last five years – largely from Australian companies in the mining sector – amounts to over $1 billion.”

As demonstrated by the Kalimantan mining project, it is localised issues, not global trends that determine the details of political risk coverage. The Philippines and Papua New Guinea tend to be both the hottest and most contentious markets for enquiries and are dominated by local risk factors.

On a national level the Philippines is a highly attractive country geologically for mine development, but is also a challenging country politically with a range of cultural-cum-political issues. The influence of the Catholic Church is just one of the political and cultural challenges faced by foreign investors in new mining projects, as it is a strong vocal force and strident agitator against new projects because of their environmental, social and cultural impacts.

Phelan comments: “At Marsh we get involved in very distinct regional, national, provincial and even local issues. Political risk is not just about sovereign government issues. For example Papua New Guinea has very high levels of tribal diversity especially in the southern highlands – nationally there are as many as 700 tribes and 700 different dialects. The devil is in the detail when providing cover to projects in regions such as this. It doesn’t necessarily stop deals getting done, but it can be highly intimidating as a challenge in the market. So you need to have the knowledge and ability to come to grips with what the issues are and how they can be managed.”

While it may be wider global factors that moderate the wider market trends and flows of business, it is the location-specific issues and the ability of both the underwriters and brokers to come to grips with them that determines success and failure in a regional market. There is no shortcut to developing workable market knowledge.