Credit & Political Risk: Solid Returns, But Capacity is the Fragile Link in H2 2025

Well into the second half of the year, the global credit and political risk (CPRI) (re)insurance market again stands at a familiar yet pivotal juncture: having delivered robust returns in the first half of the year, shifting capital allocations could limit capacity, making it harder for the market to maintain momentum.

“The market’s resilience has been proven historically,” says Phil Bonner, Managing Director, Global Specialty Treaty, Howden Re,“but it’s meaningless if the capital it depends upon starts looking for opportunities elsewhere.

Historically, the market has weathered systemic shocks, from the 2008 financial crisis to COVID-19 and geopolitical upheavals, with a resilience rooted in the gradual nature of its loss development.

Unlike natural catastrophe and aviation (re)insurance, whose lines are categorised by major flash points, CPRI losses evolve slowly, enabling underwriters to restructure exposures and manage recoveries. However, that same stability can sometimes mask underlying threats to capacity.

Bonner added,“Capital providers need comfort that, despite slower loss development, underwriters are closely watching exposures and actively managing the risks continuously. The outlook for the remainder of 2025 suggests more needs to be done to convince capacity, where increased risk is already emerging, that the long-term profitability is secure.”

Despite a 33% surge in demand for political risk insurance in the first half of the year, capital deployment into the sector remains cautious. Capacity is available, but its alignment with client needs has been inconsistent, with some carriers hesitant to venture into new asset classes or emerging markets.

Olivia Tolaini, [Associate Director, Credit and Financial Risks, Howden Re] notes that improvements in structured credit underwriting and claims handling have materially strengthened the sector's resilience. "Gross loss figures may look negative, but active claims management and improved recovery strategies are delivering better outcomes than headline numbers suggest. The challenge now is ensuring that capital owners see beyond these gross figures and recognise the sector's strong fundamentals.”

Gradual loss development has historically allowed CPRI underwriters to maintain profitability, even amid challenging macroeconomic conditions. However, the sector's more measured risk profile is not immune to shifting capital allocation dynamics.

"The real disruptor isn’t a sudden US$200 million single market loss,” says Bonner, “it’s when capital is diverted to sectors experiencing higher claims after significant events- like the wind blowing, or a high profile cyber attack – riding a wave of rate adjustment regardless of how well CPRI is performing through the cycle.”

This is not a new phenomenon. The 2008 financial crisis saw Swiss Re, which held a significant share of the reinsurance market, temporarily exit credit due to broader financial exposure. The resulting disruption highlighted how strategic shifts, rather than pure loss experience, pose the greater existential threat to the market.

Looking ahead, the remainder of 2025 is set to be a litmus test for how well the CPRI sector can articulate its strategic value to capital providers. While underwriting performance remains robust, the market's ability to scale alongside client demand will depend on a willingness to innovate, adapt product offerings, and maintain continuity in relationships.

Phil Bonner concluded: “The second half of 2025 will determine whether market perceptions of CPRI can move from its being seen as a dependable performer to being valued as a strategic priority.”