8 Questions for Dan Riordan of MSIG USA

Ultimately, our philosophy is to work closely with experienced and influential clients, partner with multilateral agencies, and build a diversified portfolio to effectively manage political risk in emerging markets.
By: | October 29, 2024

This fall, Risk & Insurance Editor-in-Chief Dan Reynolds caught up with Dan Riordan, head of political risk and credit for MSIG USA. After primarily insuring Japanese interests in the U.S., the company is placing more emphasis on serving US-based companies and interests globally.

What follows is a transcript of that discussion, edited for length and clarity.

Risk & Insurance: Great to talk to you again, Dan. What attracted you to join MSIG USA and what opportunities did you see with the company?

Dan Riordan: Several factors drew me to MSIG USA. First, the company’s status as one of the top insurance companies in the world stood out, with its global presence and scale being both appealing and exciting. Second, MSIG USA’s interest in expanding into specialty insurance lines aligned with my own passions. I have a particular interest in political risk, credit, and surety, and I saw an opportunity to develop these areas.

Finally, I enjoy the innovative side of insurance, especially developing new products for global markets. MSIG USA is moving from primarily servicing Japanese companies in the US to going to the open market and developing new products. For me, that’s the most interesting part of the industry.

R&I: What are your plans for doing business at MSIG USA, and how do you leverage the company’s global presence?

DR: MSIG USA is part of a global company, which provides us with tremendous resources and reach. I recently participated in calls with the head of Asia, Hong Kong’s CEO, and the UK CEO for MSIG. A few weeks ago, I was in Germany meeting with the CEO of Europe. I’ll be speaking with the CEOs in Australia and Singapore as well about our abilities to reach those markets. Having these connections and discussing our business worldwide is crucial because the industry is inherently global.

While political risk and credit insurance are very much a part of MSIG USA, our business involves investments, loans, companies, banks, and multilateral agencies that operate globally. Being able to leverage our worldwide presence and collaborate with our international counterparts is essential to our success.

R&I: What sets MSIG USA apart in the current market, particularly in the US?

DR: I believe the U.S. market is somewhat underserved in the areas of political risk and credit insurance. Demand is outpacing supply in these sectors, and there’s a growing trend among banks and public agencies to seek more capital and coverage from private insurers.

This trend has been developing over the past 10 to 15 years and is currently at a high point. It was a significant factor in my decision to join MSIG USA, as there are numerous opportunities in this space right now. In just the first 8 weeks I joined the company, we received over 300 submissions for our political risk and credit business and had already closed 5 global transactions.  The momentum remains strong, with a continual flow of new submissions, allowing us to close transactions at a steady pace.

I see great potential for these specialty products in the U.S., UK, Europe, and Canada, where there is significant infrastructure and project financing activity, but there is also a great deal of ongoing work happening in emerging markets. Our S&P Class 15, A+ rating and the expertise of our team have opened doors for us, particularly with banks in New York.

We are also seeing increased activity from Japanese banks, which have strong historical ties in Latin American countries like Brazil and Peru and are very active in infrastructure projects there. We’re receiving more opportunities in this region, which aligns with our interest in the medium to long-term infrastructure projects and leverages our underwriters’ expertise on projects involving transactions spanning 5, 10, 15, or even 20 years. As a political risk insurer, we must understand the interests and motivations of the insured parties and thoroughly study the projects, including conducting financial reviews of their loans and equity investments.

While the work is intensive, it’s also exciting. I anticipate that about half of our political risk and credit business will come from the U.S. and Canada, with the rest coming from our relationships with brokers in London, Europe, and Asia through the MSIG group.

R&I: What kind of person will fit into your team?

DR: I like creative underwriters who are willing to take on tougher risks and learn from them, and who are interested in innovating.

In my 30-plus-year career, I’ve learned that products like political and trade credit risk are never static, because the markets, project financing, and investor risk perspectives are always changing. We need to be able to adapt with the right products and services.

It’s also important to hire people who challenge you but also fit well with the team. Every day we have a stand-up meeting to talk about the submissions that have come in. I love these meetings because they bring together our team’s diverse expertise and unique global perspectives. We have team members from different backgrounds, like Javier Gomez from Mexico and Richard Abizaid, born in Lebanon. Having all of that input is really important.

R&I: What insurance needs do clients have from carriers, and how can MSIG USA differentiate itself in terms of delivering products and forming good relationships?

DR: Success comes from being responsive, first and foremost. We already have a strong foundation with our financial acumen and global presence, and now we’re doing more branding to increase awareness of MSIG USA in this market.

I often find myself explaining who we are as a company to brokers and clients because MSIG USA previously focused on servicing only Japanese companies in the market. In some respects, we are the new player on the block, and brokers love this.

However, they will test carriers when they offer new coverages and quickly turn away if you cannot deliver the right solutions, provide innovation, and most importantly, be responsive. Brokers are accustomed to receiving emails from carriers a week later, so they are often surprised when we call them back within 24 to 48 hours.

They’re small things and they might sound a bit old school, but it works and it goes a long way in differentiating our company. I also believe in hiring recent graduates for internships and training them in specialty areas, as there are limited schools that provide comprehensive training in these niche fields.

Mentoring and coaching are valuable opportunities to build out our team. I work hard to ensure that we communicate effectively and collaborate well with new hires. When new team members join, I emphasize that they shouldn’t expect to be experts right away, because it’s important not to pressure them to understand everything immediately.

R&I: What are the specific risks that fall under the category of political risk insurance?

DR: The main coverages for political risk insurance are expropriation or nationalization, currency inconvertibility and transfer, and political violence. Expropriation or nationalization coverage protects investors against governments seizing assets without providing fair compensation. Currency inconvertibility and transfer coverage protects against the inability to convert or transfer local currency due to government actions or inaction. Political violence coverage protects against property damage caused by politically motivated acts such as war, civil unrest, or revolution.

R&I: Could you provide some specific examples of political risk events that are currently dominating the conversation in the industry?

DR: There is significant interest in mining projects in Latin America and Africa, but many mining companies are concerned that the government could decide to nationalize their projects after they start extracting ore. This is an example of expropriation, and it has happened in countries like Indonesia and Bolivia. There is typically a six-month waiting period to trigger the coverage, and during that time the insured must make every legal attempt to resolve the situation through mediation or arbitration. If it’s unresolved after six months, the policy can be called, and the insurer would pay a claim.

Venezuela is another example, Over the last 15 to 20 years, there have been more than 10,000 expropriations. The government is almost in the business of expropriation.

R&I: From a broader perspective, what is your approach to political risk, and how do you think about it philosophically?

DR: MSIG USA focuses on working with strong, influential, and experienced insureds as the first line of defense in managing political risk. This includes large investors, lenders, and public agencies such as the World Bank, the European Bank for Reconstruction and Development, and the Asian Development Bank. We value partnering with these organizations because they have significant influence in emerging markets and are often preferred creditors.

Our approach is to build a diversified portfolio over time to manage our own risk exposure. We understand that our clients, whether they’re public agencies or private banks, purchase political risk coverage to manage their own limits and exposures, avoid concentration risks, and comply with regulatory requirements such as the Basel Accords. By providing insurance from a well-rated company like MSIG USA, our clients can also benefit from capital relief.

Ultimately, our philosophy is to work closely with experienced and influential clients, partner with multilateral agencies, and build a diversified portfolio to effectively manage political risk in emerging markets. &

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected].

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