As the broader re/insurance market faces challenges from loss volatility, declining prices, and exposure growth, credit and political risk insurance (CPRI) is emerging as an area of stability and strong performance.
Despite this, the sector remains underdeveloped relative to demand, with barriers limiting its full potential.
“Few (if any) other areas of the market have a comparable record of (out)performance and stability,” said Phil Bonner (pictured above), managing director, global specialty treaty at Howden Re.
Over the past 15 years, average loss ratios in the reinsurance market have been approximately 55%, with the global financial crisis causing only a mild impact on CPRI performance.
Even recent economic and geopolitical disruptions, including COVID-19, inflation, and conflicts in Ukraine and the Middle East, have not significantly affected the sector’s results.
Despite geopolitical tensions, strong underwriting standards have kept losses under control. The demand for CPRI coverage remains high as businesses and lenders face operational risks worldwide. However, the market continues to experience a supply-demand imbalance, as insurers remain cautious due to perceived complexity and volatility.
The CPRI market currently generates around $50 billion in premiums, but growth is constrained by several factors. Carrier appetite remains subdued, and many underwriters view the product as highly specialized with high headline risk and potential correlation to insurer balance sheets.
Additionally, the market relies on a small group of lead underwriters, limiting reinsurance capacity.
Bonner highlighted recent developments that could support the expansion of CPRI. He noted that new balance sheet startups are showing interest in writing CPRI, helping to increase available capacity. However, he added that a leadership gap remains in the market.
The upgrade of Lloyd’s credit rating has also broadened the pool of counterparties banks may seek coverage from, further contributing to CPRI’s appeal.
A study from WTW highlighted the segment’s resilience despite global uncertainty, with the market enjoying access to more capacity than ever before and notional maximum capacity increasing across the board.
The sector is also seeing an influx of underwriting talent, particularly from the banking industry, where professionals bring insights into credit risk and loss environments. Many of these professionals are joining managing general agents (MGAs) that can leverage multiple sources of third-party capital.
Bonner pointed to the rise of structured credit as a key driver of growth, calling it “by far the fastest growing portion of the market.” He noted that structured credit has been a major contributor to CPRI’s strong performance in recent years.
The insurance sector has adjusted its approach to structured credit by developing frameworks that align insurer and bank interests. This alignment has helped create more stable and reliable structures, supporting the expansion of credit insurance as both a risk management tool and a capital efficiency solution for banks.
Reinsurance renewals at January 1, 2025, proceeded as expected, with modest adjustments to pricing and terms across excess of loss (XoL) and pro rata programs.
Bonner stated that cedents are seeking improvements in pricing or reinsurance structures based on results. While capacity remains constrained, insurers are exploring opportunities in CPRI due to its long track record of performance, diversification benefits, and ability to manage losses amid perceived high-risk conditions and sustained demand.
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