There is a vibrant credit and political risk market in Asia that can support the needs of banks and corporates lending to and investing in emerging and frontier markets globally. Indeed, one of the most dynamic and growing markets is in supporting organisations that are investing and lending into China from Hong Kong.
Hong Kong is a regional hub and gateway into China, and political risk and credit insurance can be used to support a bank’s or a corporate’s expanding business in China. Often, Hong Kong-insured international banks
are looking to support borrowers in China. In many cases, this involves loans to state-owned enterprises and state banks that have significant demand for trade finance and general lending requirements.
One area in particular where we see a fair amount of demand is lending to state-owned enterprises in the energy sector to support the importation of oil and refined petroleum products to feed China’s energy hungry economy.
Another area that is currently topical is lending to Chinese banks. Trade flows in and out of China have picked up markedly since the end of last year, resulting in significant growth in financing needs to support trade related funding. A lot of the funding is used to support trades in soft commodities such as grains and soybean and hard commodities such as iron ore and copper cathodes. As a result, international banks - especially those domiciled in Hong Kong - are looking to lay off Chinese bank risk to credit and political risk insurers as our industry is seen as a trusted and reliable distribution partner that is also, most importantly, not a competitor.
The loan itself can be in CNY (the yuan traded within mainland China) or CNH (the offshore yuan traded outside mainland China); the letter of credit that is being confirmed by a bank offshore can also be in CNY or CNH. So, policies can be denominated in both CNY and CNH and that is something that a growing number of clients are looking for from their insurer.
One thing is certain, a firm no longer needs to go to London to cover its credit and political risk needs because Asia has more than enough capacity, expertise and number of underwriters in the market to accommodate even the most complicated transaction structures.