risk outlook - JLT Specialty

RISK OUTLOOK CREDIT, POLITICAL AND SECURITY RISK DECEMBER 2016

0.2% – 0.4% p.a*

0.7% – 0.9% p.a

2.0% – 2.5% p.a

1.6% – 2.75% p.a

0.45% – 1.0% p.a**

Sovereign Credit Risk Pricing Range




Sovereign Credit Risk Pricing Range CHINA

MALDIVES

PAKISTAN

PANAMA

USA

USA

CHINA

PAKISTAN

ALSO IN THIS ISSUE

President-elect Donald Trump is expected to pursue a looser fiscal policy and roll-back regulation in banking and financial services.

Rising debt levels will raise the likelihood of bank bailouts by the government, with banks particularly exposed to bad debts in the metals sector.

Chinese investment in the power sector will boost generation capacity, despite the risk of militant attacks on energy infrastructure.

Rating Roundup

Page 3

Page 5

Page 7

2

Maldives

9

Panama

11

Claims Data

13

Our Expertise

13

Introduction Donald Trump’s victory in the United States presidential election on 8 November 2016 underscores the emergence of anti-consensus politicians in Western democracies, who have the potential to disrupt established economic and social policies. Upcoming elections in Germany and France may result in further rejections of the political establishment. Organisations with international operations are exposed to these counterparty and country risks in the course of their daily trade and investment. In this issue of Risk Outlook we consider how a Trump presidency will impact the country’s banking sector, focussing on potential regulatory changes. We provide a detailed, forward-looking assessment of developments within the security, trading and investment environments for China, Pakistan, Panama and the Maldives, all of which have been the subject of recent

enquiries from JLT’s client base. We also provide a Rating Roundup, summarising a selection of World Risk Review ratings changes in additional countries. The relationship driven, consultative approach within the Credit, Political and Security (CPS) Risks division helps us to quantify, prioritise and minimise our clients’ political risk, security and trade credit exposures.

* The insured must be located outside of the USA to purchase this coverage. ** The sovereign credit risk pricing above is mainly focussed on the banking sector. Pricing could be higher in other sectors and for many insurers appetite for China is on a case by case basis.

N.B In addition to the sovereign credit risk pricing ranges shown above, this Risk Outlook contains pricing information on confiscation, expropriation, nationalisation and deprivation (CEND), political violence and terrorism and sabotage insurance. The various costs for contractors, investors and lenders are available for a three to five year tenor, for the countries covered in this month's Risk Outlook.

RATING ROUNDUP THIS MONTH’S WORLD RISK REVIEW RATINGS CHANGES

2

El Salvador

JLT World Risk Review Ratings

 Sovereign Credit Risk (6) Throughout 2016, a political impasse in the Legislative Assembly strained El Salvador’s liquidity position as opposition parties obstructed the approval of loan and debt issuances in the face of growing shortterm debt repayment obligations. Whilst the assembly agreed in November 2016 to issue USD 550 million in long-term debt, substantial structural reforms, particularly to the pension system, are still required to address medium-term risks.

CREDIT, POLITICAL AND SECURITY RISK | Risk Outlook | December 2016

December 2016 Currency Inconvertibility & Transfer Risk 10 9

Country Economic Risk

Sovereign Credit Risk

8 7 6 5 4 3

War & Civil War

Expropriation

2 1

Myanmar P USA

ê Legal & Regulatory Risk (8) Myanmar’s upper house approved a new Myanmar Investment Law, which will come into effect in April 2017. The law should streamline investment procedures for foreign companies, particularly in manufacturing, infrastructure and agriculture. Whilst large projects with significant environmental impact will still face lengthy approval processes, smaller projects

Contractual Agreement Repudiation

Terrorism

Strikes, Riots & Civil Commotion

Legal & Regulatory Risk

will benefit from simplified procedures.

Algeria é Strikes, Riots and Civil Commotion (5) The Council of Ministers approved the 2017 budget in October 2016, outlining plans for austerity policies over the coming 3 years. The budget includes plans for a 28% cut in state spending, with cuts to subsidies and social housing anticipated. The cuts will sustain an escalation in protests, with a 78% increase in civil unrest seen in Q2 2016 from the same period in 2015.

Saudi Arabia é Country Economic Risk (3) Fiscal consolidation in Saudi Arabia has undermined business and consumer confidence in the non-oil sector. The International Monetary Fund has cut its growth forecast for the sector to 0.3% in 2016, from 1.6%, which will have an impact on the broader economy's performance in 2017.

1 = Low Risk 10 = High Risk  = Under Review (Monitoring for increased risk)

 = Under Review (Monitoring for decreased risk)

é = Increased Risk ê = Decreased Risk

USA

Low Risk

1

CHINA

High Risk

10

PAKISTAN

Under Review (Monitoring for increased risk) 

MALDIVES

Under Review (Monitoring for decreased risk) 

PANAMA

The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 60 international sources of data. USA Rating Outlook: Country Economic Risk; Sovereign Credit Risk; Legal & Regulatory Risk

PAKISTAN Rating Outlook: Terrorism; Country Economic Risk; Contractual Agreement Repudiation The Chinese government is expected to invest a total of USD 45 billion in the China Pakistan Economic Corridor, of which USD 34 billion will be directed towards energy projects.

MALDIVES Rating Outlook: Sovereign Credit Risk; Contractual Agreement Repudiation

Donald Trump is expected to pursue an expansionary fiscal policy, rationalising the number of tax brackets from seven to three and spending as much as USD 1 trillion on infrastructure development.

As part of its Public Sector Infrastructure Program, the Maldivian government is undertaking several large infrastructure projects totalling USD 1.7 billion in the next three years.

CHINA

PANAMA

Rating Outlook: Country Economic Risk;

Rating Outlook: Strikes, Riots & Civil

Legal & Regulatory Risk

Commotion; Legal & Regulatory Risk

Private-sector debts are estimated at around 210% of GDP, whilst banks are particularly overleveraged to the iron and steel sectors, which account for around 30% of the country’s bad debts.

A strong pipeline of major infrastructure projects will drive the Panamanian economy in the coming years, with over USD 23 billion of projects currently under construction or in development. 

www.jltspecialty.com | Risk Outlook

3

USA Risk Outlook Donald Trump’s victory in the United States (US) presidential election has elevated near term political risks in the country, as uncertainty remains over the detail of his policy agenda. It is expected that Trump will pursue expansionary fiscal policy, prioritising tax cuts and infrastructure spending. Regulatory roll-backs in banking and financial services are also likely, disrupting global cooperation on financial regulation and resilience planning. Security Environment Trump’s decisive victory in the US presidential election and Hillary Clinton’s acceptance of the result will mitigate the risk of prolonged and co-ordinated political protests against the new

Increased federal spending is expected, particularly on infrastructure, where Trump has promised to invest as much as USD 1 trillion.

demonstrations are possible. These

plans to rationalise the number of tax

will be concentrated in urban areas

brackets from 7 to 3, reducing the top

and could attract thousands. Events

rate of marginal income tax to 33% from

will remain largely peaceful, with limited

39.6% and cutting the top corporate

collateral damage to nearby property

tax rate on profits to 15% from 35%.

and some road blockades. Anti-Trump

Increased federal spending is expected,

protests could escalate in frequency and

particularly on infrastructure, where

potency if they become entwined with

Trump has promised to invest as much

demonstrations linked to the Black Lives

as USD 1 trillion. However, the President-

Matter movement.

elect will need to garner the support of more fiscally conservative Republicans

Trading Environment It remains to be seen whether Trump

in Congress, and this may moderate his spending plans.

will moderate his more radical policy

A Trump presidency is unlikely to

administration over the next 6 months.

positions. This uncertainty will weigh on

significantly weaken the USA’s sovereign

Localised anti-Trump demonstrations,

business confidence in the near term, as

credit position in the near term, despite

seen in around 50 cities in the immediate

businesses seek clarity on policies before

additional spending. However, Trump has

aftermath of the election, are likely to

making investments. However, Trump is

not outlined a long-term debt reduction

dissipate in the remainder of 2016.

expected to follow an expansionary fiscal

plan. Without further action, credit risks

However, as Trump’s January 2017

policy, which will present upside risks

will rise towards the end of Trump’s term

inauguration approaches further

for near term economic growth. Trump

in 2020, as increasing Social Security and Continued on page 4 

4


Investment Environment

Medicare payments elevate debt to 84% of GDP in FY2025 from 77% in FY2016.

Trump’s ‘America First’ agenda will

The President-elect is expected to

Trump’s pledge to repeal the Affordable

roll-back regulation of the financial

Care Act (ACA) will exacerbate these

services sector. Targets for deregulation

pressures. The Congressional Budget

include the Consumer Financial

Office has forecasted that a repeal of the

Protection Bureau (CFPB), whose

ACA with no replacement of its costcontrol mechanisms would elevate federal budget deficits by an average 14 basis

power to ban certain financial products in the interest of consumer protection may be removed. In addition, the

points of GDP in the next 10 years.

2010 Dodd-Frank Act may see its key

Trump’s ‘America First’ agenda will also impact the global financial services sector, as he seeks to promote the interests of US financial companies in the face of global competitors.

tenets repealed, whilst liquidity and capital requirements may be loosened. Regulatory roll-back will have a mixed effect on the banking sector. Whilst compliance costs would fall and profits would be boosted, in the medium term riskier activity would dent capital levels

also impact the global financial services sector, as he seeks to promote the interests of US financial companies in the face of global competitors. This will include greater scrutiny of foreign investment into the US financial sector. This approach will also undermine international cooperation on financial regulation, which has strengthened since the 2008 financial crisis. Trump will likely pull back from the Globally Systemically Important Financial Institutions framework, stalling further harmonisation of regulation and weakening coordinated responses to future shocks to the global financial system. 

and reduce financial resilience.

0.2% – 0.4% p.a*

0.1% – 0.2% p.a

0.025% – 0.03% p.a

0.0125% – 0.02% p.a


CEND Risk Pricing Range

Full Political Violence Pricing Range (non-aggregation zones only)

Terrorism & Sabotage Only Pricing Range (non-aggregation zones only)

* The insured must be located outside of the USA to purchase this coverage.

RATING OUTLOOK Country Economic Risk; Sovereign Credit Risk; Legal & Regulatory Risk


5

China Risk Outlook The metals sector will remain dominated by state-controlled entities in the medium term, despite a gradual relaxation of rules on foreign ownership. Escalating debt levels raise the likelihood of bank bailouts by the government, with financial institutions particularly overleveraged to the steel and iron sectors. Meanwhile the election of Donald Trump as US President raises the prospect of high tariffs being applied by the country’s largest trading partner. Security Environment

Trading Environment

Long-standing disputes with

Infrastructure spending and China's

neighbouring countries over the South

continuing property boom have

China Sea will continue following the July

contributed to growth of approximately

2016 decision by the Permanent Court of Arbitration to reject China’s historic sovereignty claims in the area. Despite Chinese protestations at this outcome, the situation is unlikely to escalate into violent conflict, as most parties appear willing to pursue a negotiated solution. A developing rapprochement with the Philippines under President Rodrigo Duterte will further reduce the risk of

Private-sector debts are estimated at around 210% of GDP, whilst banks are particularly overleveraged to the iron and steel sectors, which account for around 30% of the country’s bad debts

around 210% of GDP, whilst banks are particularly overleveraged to the iron and steel sectors, which account for around 30% of the country’s bad debts. In October 2016 the China Construction Bank announced plans to address credit risks in the metals sector, including USD 3.53 billion of debt restructuring to assist Wuhan Iron and Steel Group, in addition to a USD 1.47 billion debt-for-equity swap with Yunnan Tin Group. Elevated debt levels raise the likelihood of banking bailouts by the government in the medium term, with some commentators estimating that this could cost the state

conflict in the short to medium term.

in excess of USD 500 billion.

In October 2016 Duterte and Chinese

6.7% in Q3 2016. However, concerns

leader Xi Jinping agreed to reopen talks

have arisen over the state of the Chinese

The election of Donald Trump as US

on the dispute, whilst Vietnam has also

banking sector, given the country’s rising

President has the potential to destabilise

highlighted its commitment to settling its

overall debt levels, which are growing

the trading relationship between the two

grievances through bilateral discussions.

at almost double the rate of GDP.

countries. Throughout his presidential

Private-sector debts are estimated at

campaign Trump threatened to impose Continued on page 6 

6


high tariffs (up to 45%) on Chinese

have deterred large-scale foreign

announced the opening of 7 new FTZs

imports. This follows the 266% tariffs

investment in the Chinese metals

in August 2016, following on from a

that the US put on some Chinese

sector, the government has begun

number of changes to investment rules in

steel products in 2015. Meanwhile in

to relax regulations in an attempt to

FTZs, allowing 100% foreign ownership

November 2016 the European Union

attract foreign capital. In July 2016 the

in numerous areas including construction

(EU) applied new provisional tariffs

government revealed plans to pilot wholly

and the operation of gas stations. In

ranging from 43.5% to 81.1% on certain

foreign-owned steel manufacturing

October 2016, the government amended

Chinese steel and iron imports.

plants in 4 free-trade zones (FTZs), in an

legislation to create an easier filing regime

attempt to boost efficiency in the sector.

for foreign companies, focusing on key

However, the metals sector will remain

laws for joint ventures and wholly foreign

state-dominated, whilst the suppressed

owned companies. Although outright

price of minerals will act as a further drag

contract cancellation risks in China are

on foreign investment in this area over

low, the highly politicised legal system will

the medium term.

likely see domestic firms gain preferential

In July 2016 the government revealed plans to pilot wholly foreign-owned steel manufacturing plants in 4 free-trade zones (FTZs) Investment Environment

In the wider economy, a gradual relaxation of foreign investment laws and regulations is likely to continue as China

Although restrictive ownership rules and

focuses on maintaining its economic

a challenging operating environment

growth targets. The government

treatment ahead of foreign companies in legal disputes. In May 2016 Apple lost a case in a Beijing court over the use of its iPhone trademark by Chinese leathergoods company Xintong Tiandi. 

0.45% – 1.0% p.a*

0.2% – 0.8% p.a

0.03% – 0.04% p.a

0.0175% – 0.025% p.a



Full Political Violence Pricing Range

Terrorism & Sabotage Only Pricing Range

* The sovereign credit risk pricing above is mainly focussed on the banking sector. Pricing could be higher in other sectors and for many insurers' appetite for China is on a case by case basis.

RATING OUTLOOK Country Economic Risk; Legal & Regulatory Risk


7

Pakistan Risk Outlook Pakistan’s power sector will benefit from Chinese investment as part of the China Pakistan Economic Corridor (CPEC). The government’s desire to establish Pakistan as a net energy exporter will ensure favourable investment terms. However, there remains an elevated risk of contract alteration, whilst militant groups opposed to Chinese investment may target power projects. Security Environment Pakistan’s security outlook has significantly improved since July 2014, especially in city centres, as the military has successfully targeted militant groups, including Tehrik-e-Taliban Pakistan. The likelihood of large-scale attacks aimed at well-secured targets has significantly diminished as a result of militant networks being disrupted.

Infrastructure projects backed by foreign investment have been specifically targeted by the Sindhi and Baloch militant groups, which oppose Chinese investment in Pakistan. Provincial nationalist groups pose the greatest risk to the CPEC, a trade

Trading Environment Real GDP growth in Pakistan is at its highest level in over 10 years at 5.7% in the fiscal year ending June 2016. In addition, inflation is low, averaging 2.5% in 2015. This has facilitated the reduction of interest rates by the State Bank of Pakistan. The government has amended the Fiscal Responsibility Act, thereby reducing the fiscal deficit from 8.2% of GDP in FY2012/13 to 4.4%

Nonetheless, there continues to be an

link between Gwadar, Balochistan, in

elevated risk of mass-casualty attacks

Pakistan, and Kashghar, Xinjiang, in

in Pakistan, aimed at soft targets.

China. Infrastructure projects backed

Sectarian groups still operate in the

by foreign investment have been

country and increasingly target religious

specifically targeted by the Sindhi and

minorities and the judiciary. There is also

Baloch militant groups, which oppose

an increased threat of mass-casualty

Chinese investment in Pakistan.

suicide attacks being carried out by

However, the capability of these groups

self-radicalised cells and smaller militant

is largely limited to small-arms attacks,

Low international oil prices have

groups, such as Al-Qaeda in the Indian

improvised explosive device (IED)

contributed to the economic turnaround

Subcontinent and Lashkar-e-Jhangvi.

attacks and kidnapping for ransom.

in Pakistan, as oil accounts for 35% of

of GDP in FY2015/16. In addition, Pakistan’s foreign exchange reserves serve as a buffer against external shocks, having risen from USD 4.4 billion in November 2013 to USD 19.5 billion in August 2016, providing 4.7 months of import cover.

total imports. The Pakistani government’s Continued on page 8 

8



finances have improved alongside increased manufacturing growth and

Pakistan as the government will not risk destabilising investor interest in

The Pakistani energy sector will

domestic power supply. Nonetheless,

experience a boost in foreign direct

Pakistan’s government has not

investment as a result of the CPEC. The

deregulated the energy industry and a

Chinese government is expected to

sustained recovery in international oil

invest a total of USD 45 billion, of which

prices will further strain the economy. Pakistan has extensive external debt, forecasted at 25.1% of GDP in 2016, due to its dependency on external financing. Moreover, the International Monetary Fund’s assistance programme completed

investments are also legally protected by the 1976 Foreign Private Investment Promotion and Protection Act.

USD 34 billion will be directed towards

Despite this, energy sector projects are

energy projects. Investment in coal

highly politicised and the risk that state

power plants, hydropower, solar and

contracts will be altered is elevated. At

wind energy will add 10,000 megawatts

particular risk are contracts signed under

(MW) to Pakistan’s generation capacity.

previous administrations. As legislative

Whilst the government hopes to make

Investment in coal power plants, hydropower, solar and wind energy will add 10,000 megawatts (MW) to Pakistan’s generation capacity.

the critical energy sector. Foreign

Pakistan an energy exporter, the country currently faces daily power shortages of at least 4,550 MW. Given the need for substantial fresh capital, investors in independent power producer (IPP) agreements will benefit from favourable investment conditions, with estimated

in September 2016, withdrawing an

returns of approximately 35% per year.

important source of foreign exchange.

Moreover, expropriation is unlikely in

elections approach in 2018, there will be concerns that an incoming government will also scrutinise contracts signed under current Prime Minister Nawaz Sharif. In February 2015, a senate committee cancelled the contract for the construction of a USD 34 million transmission line, under the pretence that public procurement rules had been violated. 

2.0% – 2.5% p.a

1.0% – 1.8% p.a

0.07% – 0.1% p.a

0.07% – 0.1% p.a





N.B In general, insurers’ appetite for Pakistan is highly dependent on the nature of the risk and identity of the insured.

RATING OUTLOOK Terrorism; Country Economic Risk; Contractual Agreement Repudiation


9

Maldives Risk Outlook Deep political divisions persist in the Maldives; however, consolidation of power by President Abdulla Yameen will limit opposition effectiveness. Variable growth in the tourism sector and growing government debts will weigh on the country’s credit worthiness, although debt will remain affordable in the near term. Security Environment The risk of civil commotion is elevated in the Maldives, as a fractious political environment periodically leads to times

effective opposition. In September 2016,

the next 3 years. This includes the

protests demanding Yameen’s resignation

redevelopment of the international airport,

attracted only around 100 people.

relocation of Malé’s port to the island of Thilafushi and a housing project at

of unrest. In February 2015, following

Trading Environment

the arrest of former president Mohamed

A competitive tourism sector has

Nasheed, thousands of his supporters

supported recent growth in the

took to the streets, leading to clashes

Maldives, which is forecasted at 3.5%

with the police and the hospitalisation

in 2016. However, the country’s lack

of some opposition figures. Despite

of diversification (tourism revenues

persistent political divisions, the risk of

constitute around 85% of GDP), means

civil unrest should recede in the medium

the Maldivian economy is highly leveraged to global tourism trends. In 2009, a fall

Despite downside sovereign credit risks, the Maldives maintains an affordable debt burden. term as President Abdulla Yameen consolidates his position. Increasingly authoritarian rule, security crackdowns on political opposition and Nasheed’s own exile in the United Kingdom will prevent

in arrivals following the financial crisis

Hulhulmalé. Whilst such projects will be a substantial driver of economic growth, infrastructure development plans will also contribute to a growing debt burden which is expected to reach 94.6% of GDP by 2018, from 63.6% in 2015. The government also guarantees around USD 92.4 million of various state-owned enterprises’ debt, which poses a further downside credit risk.

contributed to a 5.3% contraction in

Despite downside sovereign credit risks,

real GDP. In the one-year outlook further

the Maldives maintains an affordable

deceleration in the Chinese economy

debt burden. Following a move to

could weigh on sector growth, as 29% of

an administered interest rate system

tourist arrivals are from China.

domestic debt servicing levels fell, with

As part of its Public Sector Infrastructure Program, the Maldivian government is undertaking several large infrastructure projects totalling USD 1.7 billion in

treasury-bill yields averaging 4.5% in 2015, from 10.5% in 2014. In addition, around half of the country’s external debt is held on concessional terms as Continued on page 10 

10 CREDIT, POLITICAL AND SECURITY RISK | Risk Outlook | December 2016


the government has maintained sound relations with its lenders. The decision

Whilst President Yameen’s coalition

to leave the Commonwealth will have a limited impact on the Maldives’ sovereign credit position, given the organisation’s minimal operational presence, which is largely restricted to the provision of educational scholarships.

The decision to leave the Commonwealth will have a limited impact on the Maldives’ sovereign credit position.

by the government for the lease of 3

government has attempted to attract foreign investment, companies operating in the Maldives will be exposed to

islands to Villa, a group of firms owned by the Jumhooree Party leader Qasim Irahim. This followed his party’s exit from the ruling coalition.

arbitrary government actions. In

The government’s dominant position

December 2012, the government

in parliament gives it greater scope

cancelled a contract with Indian firm

to implement policy unhindered. This

GMR Infrastructure for the construction

allowed the passage of a Special

and operation of a new terminal at Malé

Economic Zones (SEZ) bill in 2014,

International Airport. GMR Infrastructure

which seeks to promote investment

lost the legal challenge it brought against

in the hi-tech and financial sectors in

the decision in a Singaporean court.

remote areas of the country. However,

Increasing consolidation of power under

much-needed reforms to the country’s

Yameen and politicisation of the judiciary

inconsistent tax system, proposed

may increase the frequency of such

during Nasheed’s tenure, have been

unilateral action. Particularly at risk are

delayed under the current government

firms with links to opposition figures. In

and are unlikely to be implemented in

February 2015, contracts were cancelled

the medium term. 

1.6% – 2.75% p.a

0.6% – 1.25% p.a*

0.03% – 0.35% p.a

0.0125% – 0.0175% p.a





* Pricing will vary according to where the risk is. If it is on a remote atoll then there is no political violence risk, however this is substantially increased if in Malé, given that there have been riots there in the past few years.

RATING OUTLOOK Sovereign Credit Risk; Contractual Agreement Repudiation

www.jltspecialty.com | Risk Outlook 11

Panama Risk Outlook Panama’s strong infrastructure project pipeline will drive economic growth in the coming years, boosting the country’s position as a regional logistics and distribution hub. Although the government maintains an investor friendly business environment, there is unlikely to be significant progress towards a more transparent financial system. Security Environment Despite enjoying a more stable security environment than neighbouring

contract alterations. Following sustained

over USD 23 billion of projects currently

pressure on the government, the Ngäbe-

under construction or in development.

Buglé indigenous community reached

Government and foreign investment in projects will bring robust real GDP

countries, an estimated 200 criminal gangs are operating in Panama, elevating the threat of violent robbery and express kidnap. The Juan Diaz, Calidonia, Rio Abajo and Parque Lefevre districts of Panama City are particularly high risk

The completion of the canal expansion project in June 2016 will be a boon for the distribution and logistics sector.

for foreign personnel and several major hotels popular with business travellers are located in these areas. In January 2016, a Panamanian businessman was released by kidnappers in Condado del Rey, having been held for 3 days. It is unclear whether a ransom was paid.

hydropower and mining projects. Whilst demonstrations are largely peaceful, roadblocks may limit access to assets. Prolonged protests can also lead to

to 6.2% in 2017. Growth driven by the Panama Canal expansion project and other infrastructure projects, including the Panama Metro Line 2, has supported growing real wages and consumer demand, with real GDP per capita rising

an agreement with the government in August 2016 that the operator of the planned Barro Blanco dam would withdraw from the contract, and that all planned hydroelectric projects in their territories would be cancelled.

There is a growing risk of protests by indigenous communities opposing

growth of 6.1% in 2016, rising slightly

Trading Environment

by 72.1% between 2006 and 2015. The completion of the canal expansion project in June 2016 will be a boon for the distribution and logistics sectors, despite an immediate decline in demand for haulage of capital goods. The ability of the canal to receive larger ships will boost Panama’s reputation as a regional

A strong pipeline of major infrastructure

logistics hub. This is expected to translate

projects will drive the Panamanian

into greater volumes of goods passing

economy in the coming years, with

through Panama’s roads, rail network Continued on page 12 


and warehouses. The government plans

in nearly all sectors and business

laundering. President Juan Carlos

to invest a further USD 3.28 billion in the

contracts are supported by adequate

Varela’s government has since promised

wider logistics sector up to 2019 to meet

protection in the legal code. Given the

to improve transparency in the financial

demand, with road capacity expected to

government’s pro-investment attitude,

sector, establishing an independent

reach 28.15 million tonnes in 2020, from

expropriation is unlikely and legislation

commission to investigate financial and

23.98 million tonnes in 2016.

guarantees compensation where it does

legal practices. However, the commission

occur. Whilst the government is working

lost credibility following the resignation of

to broaden its tax base, the canal

two international experts in August 2016,

expansion is forecasted to generate an

after the government refused to guarantee

additional USD 400 million in revenues.

that a final report would be made public.

This will reduce fiscal pressures in the

These experts released an independent

medium term and there is unlikely to be

report in November 2016, suggesting

a tax rise for foreign companies.

that offshore financial havens should be

Foreign investors can participate in nearly all sectors and business contracts are supported by adequate protection in the legal code.

The April 2016 ‘Panama Papers’ scandal, in which millions of documents relating


to Panamanian offshore entities were

Panama maintains a highly investor

leaked to the public, has undermined

friendly business environment to support

the country’s reputation as a regional

its service sector-reliant economy.

financial centre and raised questions

Foreign investors can participate

over levels of corruption and money

disconnected from the global economic system. Despite this scandal Panama’s financial services industry will continue to attract foreign capital, ensuring the country’s primacy as a regional economic and financial centre. 

0.7% – 0.9% p.a

0.5% – 0.6% p.a

0.04% – 0.05% p.a

0.0125% – 0.0175%





RATING OUTLOOK Strikes, Riots & Civil Commotion; Legal & Regulatory Risk

JLT Specialty Limited provides provides insurance insurance


broking, risk management and claims consulting services to large and international international companies. companies. Our Oursuccess success comes from focusing on sectors where we know we can make the greatest difference – using insight, intelligence and imagination to provide expert advice and robust – often

CLAIMS DATA Claims management is central to the value that we seek to add at JLT, and foremost in our minds when we work for any client. Claims are not an afterthought; they drive our placing process. JLT has a diversified client base by sector and geography and JLT has had all political risk insurance claims either paid in full, settled in agreement with

unique – solutions. We build partner partner teams teams

the client or withdrawn by the client.

to work side-by-side side-by-side with withyou, you,our ournetwork network

Please see below for historic claims data for the countries covered by this report:

and the market market to to deliver deliver responses responses which which are carefully considered from all angles. [Insert text] strongest credit, As onedivision of the world’s political and security risks teams we help banks, commodity traders and

SUMMARY OF CIRCUMSTANCES

LOCATION

YEAR

INDUSTRY SECTOR

USA

2015

Banking

Non-honouring of obligations under insured swap payment

USA

2014

Banking

Non-honouring of facility payments

USA

2013

Banking

Obligors entered into Chapter 11

USA

2009

Commodity trading

Credit insolvency: Customer in Chapter 11

China

2014

Banking

Contract frustration: Non-payment

China

2014

Commodity trading

China rejected approximately 200,000mts of US corn by turning away vessels said to be carrying MIR 162 corn (GMO corn from Syngenta seeds)

China

2009

Banking

Contract frustration: Non-payment

China

2009

Banking

Credit insolvency: Non-delivery/ non-payment under a secured pre-export finance facility for steel products provided to the obligor and guaranteed by the guarantor

corporations to understand, mitigate and transfer the effects of political and country economic risk, counterparty (credit) risk, political violence and kidnap & ransom. Through a relationship driven, consultative approach we use a systematic methodology to quantify, prioritise and minimise your company’s political risk, security and trade credit exposures.

CONTACTS Ruth Lux Senior Consultant, JLT Specialty Limited +44 (0) 20 7886 5409 [email protected] Alastair Pringle Political Risk Analyst, JLT Specialty Limited [email protected] Eleanor Smith Political Risk Analyst, JLT Specialty Limited [email protected]

This newsletter is published for the benefit of clients and prospective clients of JLT Specialty Limited. It is intended only to highlight general issues relating to the subject matter which may be of interest and does not necessarily deal with every important topic nor cover every aspect of the topics with which it deals. If you intend to take any action or make any decision on the basis of the content of this newsletter, you should first seek specific professional advice. JLT Specialty Limited The St Botolph Building 138 Houndsditch London EC3A 7AW www.jltspecialty.com Lloyd’s Broker. Authorised and regulated by the Financial Conduct Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London EC3A 7AW. Registered in England No. 01536540. VAT No. 244 2321 96. © November 2016 273343

JLT CREDIT, POLITICAL & SECURITY RISK EXPERTISE Organisations with international

relationships with all insurers in this

operations are exposed to counterparty

sector. At any one time we manage

and country risks in the course of their

upwards of USD 60 billion of insurance

daily trade and investment. The diversity

capacity and we have had extensive

of JLT’s client base reflects the fact

success in collecting claims on our

that all balance sheets can benefit from

clients' behalf.

the leverage and protection given by structured use of credit and political risk insurance.

The insurance contracts we arrange relate to a wide variety of transactions brought about by our diverse client

JLT has been a leader in political risk

base and we also offer a range of risk

insurance since the advent of the market

consulting services. 

in the early 1980s and enjoys strong