PVT market shows resilience amid rising geopolitical threats – Allianz Commercial’s Todorovic

Allianz Commercial’s Srdjan Todorovic discusses market maturity, exposure management and terrorism trends in an evolving risk landscape

The political violence and terrorism (PVT) insurance market has experienced a transformative few years. From uprisings in Latin America to conflicts in Eastern Europe and the Middle East, geopolitical volatility has shaped underwriting conditions and claims activity in profound ways.

Srdjan Todorovic, Head of terrorism and hostile environment solutions at Allianz Commercial, believes this evolving risk landscape is challenging the notion of market maturity – even as new capacity re-enters and lessons from past losses continue to inform underwriting.

“There is maturity in the market, but it doesn’t extend to everyone or every corner,” Todorovic says.

“With it being a market, it is open to economic forces just like any other. More established markets are in different internal cycles to the relatively new joiners. This means a lot when it comes to competitive practices and pricing.”

He identifies key inflection points over the past six years – Chile, South Africa, Ukraine, and most recently the Israel-Gaza-Lebanon conflict – as having shaped the current market mindset.

“Even with the experience gained from this period, there are now more companies writing standalone PVT than ever before,” he says.

“I would estimate that capacity is nearly back to pre-Ukraine levels.”

According to Todorovic, the events of recent years have demonstrated the market’s resilience.

“What we have learnt from the last six years is that there is resilience in the PVT market for medium to medium-large events,” he says.

“Despite the fear of World War III and certain other regional conflicts, the capacity to continue writing this class is still very much there.”

Managing accumulations and contingent exposures

Exposure and portfolio management are central to underwriting PVT, a line of business that relies more on judgment than on mature data models.

“The PVT market has settled one standard approach to terrorism and sabotage,” Todorovic explains.

“This is with a defined blast-zone usually without PML methodology.

“For SRCC [strikes, riots and civil commotion], there has been a shift to country-wide aggregation and accumulation monitoring. This has shifted from city level because of the type of countrywide incidents since 2019, such as Chile, Colombia, France, South Africa and BLM.”

However, for certain perils, challenges remain.

“For contingent exposures, there is great difficulty in monitoring true accumulation, which is a problem across property classes.”

These constraints make disciplined underwriting essential, particularly as a global wave of instability continues to impact policyholders.

Underwriting discipline in a soft market

While geopolitical risks have intensified—from extremist terrorism to state-sponsored sabotage – Todorovic points out that the PVT market remains relatively soft.

But he rejects the notion that this is unusual.

“I wouldn’t say that this is odd,” he says.

“I appreciate we are talking about two very different sized markets, but property underwriters continue to write natural catastrophe risk despite past losses.

“The last six years and further the past 24 years have shown that the market is profitable despite these events.”

He also notes that market participants are improving their own resilience.

“There is better defined appetites too, following the recent turbulence.

“To add to the experience and a better-defined appetite, insurers have also redefined their reinsurance programmes to hopefully be better fit for their portfolios.”

Todorovic highlights another structural factor that helps support profitability.

“There is a significant miss factor as PVT covers are not bought by all clients which buy property all risks insurance,” he says.

“There are also covers which are shared across line of business, with PVT often acting as backstop to gaps in limit or cover for the ‘all-risks’ classes. Don’t forget, this was the reason it was established after 9/11, to fill a shortfall in terrorism coverage.”

Still, he cautions that the peril environment is “very real and tangible”, and underwriters are responding accordingly.

Election risks, sabotage, and the intelligence challenge

Despite warnings that 2024 would be a “Super Year of Elections”, Todorovic says losses did not emerge directly from political polls.

“There were some losses in the SRCC space but not directly linked to elections,” he says.

“Most of the losses were linked to political policy changes, for example in New Caledonia and Kenya.”

Elsewhere, rising ideological extremism has translated into terrorism threats.

“Other growing concern is the far right and Islamist terrorism threat on the continent of Europe,” he says.

“The largest [attack] being Moscow Crocus City Hall, although I don’t think that this was insured due to sanctions issues.”

These events impact not only the PVT market but also related areas like event cancellation insurance.

Another trend he flags is sabotage, particularly involving strategic infrastructure.

“Strategic offshore assets, such as power production, pipeline and telecommunication. There have been relatively few insured losses in the PVT market, but the risk is on our radar following a big shift in grey space tactics from state actors.

“The underwriting around these types of risks is certainly enhanced and capacity reduced.”

As for how PVT as a discipline is evolving, Todorovic emphasises that judgment and experience remain paramount.

“PVT is a relatively junior market, and we learn from every loss, event or near miss,” he says.

“Data is very limited, so this is why experience, and a clear line size and underwriting strategy and appetite, are fundamental.

“As with infancy of every market and line of business, pooling of risks is fundamental to its survival and longevity.”