Resource nationalism ups political risk premiums

By Peter Apps, Political Risk Correspondent

LONDON (Reuters) - Political risk insurance premiums have risen across emerging markets in the last year, fuelled by rising resource nationalism and unrest linked to the financial crisis as well as a renewed concern over risk amongst investors.

Foreign direct investors use the political risk insurance market to buy protection against nationalisation, expropriation, political violence or capital controls preventing convertibility of earnings. It generates some $1.5 billion (900 million pounds) in premiums each year.

President for Surety, Credit and Political Risk at insurers Zurich (ZURN.VX) Dan Riordan said the rise in premiums was due to both increased demand as well as heightened risk, particularly of government takeovers of natural resources in Latin America.

"Premiums have risen pretty much across the board in the last year," he told Reuters. "There's a lot more demand than there was. Wariness of risk is pretty much an all-time high, and there is a limited supply of political risk insurance."

Generally, annual political risk premiums are 1-3 percent of the value insured, and currently were pushing towards the upper end of that. To control its exposure, Zurich will only cover $150 million per asset, with insurance coverage sold for periods of up to 15 years.

The main consumers of expropriation and nationalisation coverage are resource companies increasingly nervous of a growing trend of populist governments such as that of President Hugo Chavez in Venezuela taking control of assets.

"We're seeing more and more companies getting worried about resource nationalism," Riordan said. "It's been a growing trend, particularly in Latin America -- Venezuela, Bolivia -- and there are worries in Guinea after the change of government."

A military junta seized power in Guinea, the world's largest bauxite producer, in December and has since had a dispute with several foreign mining firms including UC RUSAL and Anglogold Ashanti (ANGJ.J).