Insurers are pumping more resources into political risk coverage, which offers better returns than traditional property and casualty lines, according to a Marsh report.

Market capacity for a single policy now exceeds $US2 billion ($2.57 billion) worldwide, almost double the capacity available six years ago.

An increased focus on such coverage is part of an ongoing trend towards more profitable, specialist classes, Marsh says in its Political Risk Market Update.

“Many traditional insurance lines… have become crowded with competitors, contributing to prolonged soft pricing and limited underwriting profits. Insurers have also not been able to generate much investment income because of low interest rates, which has led them to expand their product offerings to find new sources of revenue.”

Combined operating ratios for political risk have remained below 100 for the past decade, with the exception of 2008/09, when the global financial crisis struck.

Tokio Marine Kiln’s recent hiring of a trade and political risk specialist for Asia and the opening of offices in Dubai by Lloyd’s and Beazley underscore the class’ growing importance.

“The global political risk landscape continues to be shaped by falling oil prices, geopolitical tensions, and regime change, whether as a result of constitutional elections or otherwise,” Global Credit & Political Risk Practice Leader Evan Freely said. “But these trends have not yet translated into catastrophic losses for insurers.”

Increased capacity in the political risk marketplace is a boost for companies that have deliberated on taking up cover, with pricing falling to historic lows.

“A just-in-time approach to political risk can leave a company highly vulnerable when it needs coverage the most,” Mr Freely said.

“Now is the time for risk managers to work with their advisers to negotiate favourable pricing, terms and conditions to build effective insurance programs that protect their organisations’ bottom lines.”