Egypt’s Troubles A Wait & See For Insurers

According to insurance broker Aon's political risk map, prior to recent events, Egypt was considered a medium risk for factors such as strike, riot, civil commotion, terrorism, supply chain disruption and legal and regulatory risks. Insurance capacity was considered normal. The only outstanding concern noted in the report was succession.

In the first sign of repositioning of the nation's risk, Moody's today issued a downgrade of Egypt's government bond ["Ba2" from "Ba1"] and changed the outlook to negative from stable.

Moody's said the concern is that recent events "could undermine Egypt's already weak public finances."

From an insurance standpoint, Andrew van den Born, executive director, Financial Solutions for insurance broker Willis Group in London, said underwriters are monitoring and waiting, understanding that what happens in Egypt could have a profound impact throughout the Middle East, including Israel.

The most immediate impact will be property damage from the political violence in the country and any insured market disruption that might arise from that, he said.

Delays could occur from goods transported through the Suez Cannel, but long term, a shutdown is not expected since it is the major generator of revenue for the country, he said.

"Other than that, it is a little early to say what the impact will be," said Mr. van den Born.    

It is encouraging, he noted, that the U.S. government appears to be asserting some influence and seeking a "smooth transition—an evolution and not a revolution," he said.

The emerging consensus among observers, he said, is that Mr. Mubarak will be gone within 30-days, but exactly what the political landscape will look like after his departure is still under significant speculation.

Evan Freely, trade credit practice leader for Marsh noted that the worst case scenario would be a change in government that resulted in nationalization of industries, producing significant losses for insurers that have written that coverage. He stressed that there is nothing currently to indicate that such an event would take place.

Insurers have not stopped writing coverage in Egypt, he said, but "they have paused" while they evaluate the situation. Obtaining a policy to cover a business right now he added, would also depend on what the client is seeking to purchase.

"You're not going to get a policy right away," he said.

While events continue to unfold in Egypt, he noted that insurers are keeping an on the rest of the region, trying to figure out where the next flare-up may be.

This story was updated at 4:28 p.m. with comments from Mr. Freely.