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May 2023

Political risk and governance

Source: Asia Insurance Review | Apr 2023

Bizarre as it might sound, there might come a time when we look back on the years of COVID as ‘the good old days’. Hard to imagine, considering the huge death toll exacted by the pandemic and the pain and the misery and the destruction of countless businesses.
But at least there was a sense of all humanity pulling together in the face of a common adversary. Such team spirit has evaporated very quickly with a single event: Russia president Vladimir Putin’s invasion of Ukraine.
The net result has been a ramping up of geopolitical risk and the inevitable impact this has on insurance businesses from an underwriting perspective as well as from an asset management perspective.
There is little point in pretending that China and the US were firm friends before the war, but there was enough common ground for insurance business to get done. Foreign insurers and reinsurers, many with long track records of doing business in China, had continued to do business in the once fast-growing Chinese market that was hailed as the engine of growth for the region.
And leading Chinese insurers were often seen putting down roots in offshore markets as a sign that the domestic insurance industry was hungry for a slice of the pie from other territories. When it came to InsurTech, China was seen as one of the most productive technology incubators.
But recently, US and Chinese interests appeared to have had a head-on collision over a range of issues including Taiwan, Russia president Vladimir Putin’s invasion of Ukraine and global technology leadership.
This does not bode well for the globalisation of business – or the globalisation 
of insurance and reinsurance.
Meanwhile, the travails of the Adani Group have focused a spotlight on the Indian economy and the Indian regulatory environment. If there are opaque business practices going on at one regulated Indian business – what does it say about the quality of regulation? What does it say about the independence of the regulator?
From an ESG perspective, many institutional asset managers have become increasingly cautious about their exposures to unwanted risk – including governance risk. This could dampen their enthusiasm for investing in jurisdictions that are not seen to be laser-focused on good governance. Any whiff of a scandal could make them take their funds and deploy them elsewhere, in havens not tainted by unsavoury headlines.
India’s Supreme Court has formed a six-person panel to look into the Adani allegations made by US-headquartered Hindenburg Research and has instructed the regulator to conclude its investigation by the end of April. This is not a hard deadline – and it could be extended – but in the interests of clarity and commerce, a swift and plausible report is what is needed.
The specific remit of the panel is to look into the ‘regulatory failure in dealing with the alleged contravention of laws pertaining to the securities market in relation to the Adani Group’.
These are turbulent times and perhaps we had better simply get used to them, rather than harking back to the days of lockdowns, vaccinations, face masks and temperature checks. However, hindsight is making such privations and intrusions look increasingly palatable when faced with the harsh reality of the current environment.
Paul McNamara
Editorial director
Asia Insurance Review
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