What recent, and coming, elections mean for Canadian corporate risk

In a year many pundits are calling the ‘Superbowl of elections,’ political risk practically oozes from the soil.

Throughout 2024, electoral contests are slated, or recently concluded, in more than 100 countries. Anticipating potential policy changes these elections might trigger has P&C industry specialists in political risk insurance revisiting scenarios across the global chess board.

Canada shares a continent with two of its largest trading partners and is working to extend its global reach. And so the country’s risk exposures are tied to changing governments.

Risks range from potentially having to renegotiate hard-won trade agreements, to sharpening the murky picture being broadcast by new alliances coalescing among China, Russia, India and several rogue states.

“With respect to China, it’s possible a second term for former U.S. president Donald Trump could spark a revival and an escalation of trade wars with China – and not just a U.S.-China issue but sort of a West-China stance,” says Laura Burns, senior vice president of political risk in the Americas at WTW.

“There is some concern that there are scenarios where tensions increase, whether it’s the South China Sea or just trade in general.”

Tarif troubles

Manifestations of these tensions surfaced in late August when Canada announced it would mimic steep U.S. tariffs on Chinese-built electric vehicles, and also add a 25% surtax on imports of Chinese steel and aluminum. China quickly retaliated with a probe into alleged dumping of canola seed into Asian markets by Canada.

On this continent, observers call Mexico’s new president Claudia Sheinbaum the heir apparent to protectionist policies championed by her predecessor Andrés Obrador. If true, Sheinbaum’s administration could create “concerns about the foreign direct investment climate, where there has been some deterioration in the form of expirations – particularly when it comes to energy sovereignty,” Burns says.

From a trade and investment standpoint, Burns says, Mexico is like a tale of two countries. “There are some really low-risk areas [like] manufacturing, but there are some high-risk areas, particularly around rare earth or critical earth minerals,” she tells Canadian Underwriter.

“They’ve nationalized lithium and things around energy sovereignty. Those are some key areas for Canadian oil and energy [industries].”

Shifting global political priorities may also “create scenarios where extractive-related activities may be suspended or prohibited due to [environmental, social and governance] ESG related concerns of the new government,” says Andrew Cadogan, underwriting manager for management liability and corporate risk at Aviva Canada.

“It could also result in the imposition of new tariffs, which could impact the import and export of goods. While not always the case, these may be tied to a rise in protectionism in the foreign country.”

While Cadogan and other sources note insurance coverages don’t specifically address tariffs, he adds, “it is one of the exposures we consider for our insureds from an underwriting perspective.”

Global uncertainty

With nations drifting from the so-called maritime order, Canada – given its northerly geography – sits atop a world slowly discarding trading and diplomatic norms in place since the end of World War II.

Case in point, Burns suggests Canada’s pursuit of Indian nationals allegedly involved in the killing of a Sikh activist on Canadian soil in 2023 could keep relations between India and Canada frosty – particularly in light of prime minister Narendra Modi’s re-election.

“It’s hard to know where these things could manifest. Could we see an interruption of trade, vis-a-vis export controls, embargoes or other such things?” she asks.

“Depending on if and how certain flashpoints were to escalate, those are some scenarios on the minds of underwriters in our community.”

Navigating sanctions

As for management liability, Cadogan notes the main issue would be sanctions exposures and any factors that could limit insurers’ ability to provide services on foreign soil for non-Canadian subsidiaries or divisions of a Canadian-domiciled company.

“Generally, insurance services consist of foreign and local policies, claims handling, and general servicing of a client’s insurance needs outside of Canada,” he tells CU. “Depending on the country, the foreign government will likely have their own sanctions regime that might be similar to those in Canada but will likely be different than what we have.

“This could affect an insurer’s ability to transact in, or with, a certain country.”

He adds his clients have operations or subsidiaries in the U.S., and since the company writes policies in both Canadian and U.S. dollars, the U.S. Office of Foreign Assets Control – a component of the U.S. Treasury Department that monitors sanctions – must be considered.

“We need to ensure we understand the exposures and requirements from an insurance perspective,” he says.

This article is excerpted from one appearing in the October-November 2024 print edition of Canadian Underwriter. Feature image courtesy of iStock.com/SDI Productions