Political risk and trade credit

Key developments in 2025

Following a record election year in 2024 there has been a focus on the consequent geopolitical impact moving through 2025, and there has certainly been enough to keep risk analysts interested.

At the forefront of the European mind is the continued fallout from the Russo-Ukrainian war. Any unresolved sanctions positions will continue to cause insurers problems, but it has also developed the potential to change the landscape of asset seizure. EU leaders continue to debate whether to use €210bn to provide Ukraine with a loan to fund its defence. This has, consequently, resulted in Russia's central bank filing a lawsuit in Moscow to seek damages from Euroclear. The outcome of this dispute and the decisions taken may set a precedent (legal or otherwise) for asset seizure as a weapon in geopolitics moving forward. It is also worth noting that the EU's decision will be influenced by, but does not require, US involvement.

On the topic of US foreign policy (and although only just slipping into 2026), following a steady increase of presence in the Caribbean, Operation Absolute Resolve surprised the world on 3 January. US forces conducted strikes on Venezuela with around 150 aircraft and captured the President Nicolás Maduro in under four hours. President Trump has been clear in his intentions to "run" the country until a "safe, proper and judicious transition". Insurers will be keeping a keen eye on the nature of this arrangement. If the intention is for US business to move in and utilise Venezuela's rich set of resources, then underwriters familiar with the historic Chávez rule confiscation issues will be cautious.

The impact of the US operation will also be felt more widely. It is possible the US will be emboldened by its successful operation – tempting further action. Notably, dialogue with Columbia and Greenland became even more tense in the immediate aftermath of the operation. There is also a possibility that this behaviour will provide justification for other states considering foreign action and we discuss this further in the next section.

Outside of US military action, there has been a continued increase in US tariffs which have, consequently, forced trading blocs to adapt so as not to invoke the ire of the United States. The European Union, for example, is implementing steel trade rules to target supply from China. This remains a difficulty for traders and their respective insurers alike as they try to predict reliable and insurable trade flows.

If we look outside the typically Western sphere of influence, then this year has seen continued instability in several regions (and we refer to our Political Violence section for more details on armed conflicts). The West Africa, Central Africa, and Sahel regions have been termed a 'Coup Belt' and, whilst insurers have been prudent to avoid the area, losses have arisen. Looking further south, Tanzania's political situation has become openly fractious with a crackdown on protests and an internet blackout. This increased authoritarianism demonstrates a potential risk for foreign investors who will be cautious about vulnerability of any assets under such a government.

What to look out for in 2026

The global instabilities already mentioned above will not, unfortunately, disappear and we expect developments to be of continued interest to underwriters. We had purposefully not mentioned the China-Taiwan dimension because its ultimate relevance is in looking forward. There will likely be heightened tensions, activity in the South China sea (exercises and blockades), and all the consequent political wrangling as a result. This is primarily because 2026 sits as the year before the centenary of the People's Liberation Army in 2027, and sits alongside former US Admiral Philip Davidson's prediction of 2027 as a window in which China may develop sufficient capabilities to invade Taiwan.

It could be said that the US action in Venezuela will have provided a precedent for an invasion or, at the very least, increased grey zone activity. On the alternative, a display of US military power could act as a deterrent particularly where US national security policy has softened as regards Russia but hardened as regards China. In any event, whilst an invasion of Taiwan is of a different nature to the US operation in Venezuela – the resulting dynamic between the two nations will be a topic of interest for insurers into 2026.

As regards credit insurance, the First Brands collapse is being said to have exposed hidden risks and lack of transparency in the burgeoning private credit market. For insurers the fraud allegations in the collapse would likely impact coverage but the more pertinent issue is whether this signals underlying risks on any insured private credit books. In particular, to what extent have due diligence practices been followed in accordance with policy requirements? For more details from a less insurer and more industry perspective - please see RPC's article on the collapse.

In addition to private credit, we expect two hot topics will be at the forefront of the minds of insurers with vested interests. Primarily, there is a significant amount of credit which has been injected into AI companies, and this has raised sentiments that a market "bubble" exists. Given the volume of investment to date then, if this is true, the potential downturn would be significant for insurers to the extent any values have reached their books. In addition, commodity markets (and particularly in respect of gold) have been volatile this year and the ramifications of this will seep into next year. Insurers will be keen to obtain some clarity on the value of any assets which are the subject of an insured trade, or otherwise.

Finally, insurers will be keeping a keen eye on public finances. OECD countries persist in exhibiting high debt levels - and bond yields are creeping ever higher. Countries such as France already have very little fiscal headroom and pushing taxes any higher may run the risk of preventing growth. All of this will likely force risk premiums on sovereign debt ever higher across the world because, as the risk of a fiscal accident increases, the overall cost of borrowing increases.