Insurance and financial products to mitigate political and credit risk

Abstract

This project explores insurance and financial products corporations use to transfer political and credit risk. In the post-WWII era, government agencies created new types of political risk and credit insurances to foster investments abroad. This market developed with greater participation from the private sector beginning in the 1990s. Concurrently, credit derivatives including credit default swaps (CDS) began, which worked similarly as hedges against default risk. This report develops a comparison of these two instruments, from their initial inception to their current regulation. From a policy perspective, the contrast between insurances and CDS illuminates some of the challenges the public sector faces when, in turn, working to foster foreign business activity and regulate the broader financial system.