Ace: political risk reaches beyond headline violence.

Clients for political risk insurance are attuned to the dangers of political violence, but they have been slower to pick up on the threat of expropriation, according to Ace Ltd.'s lead political risk underwriter.

Julian Edwards, head of political risk at underwriter Ace Global Markets in London, spoke at a press briefing to mark the release of a report produced for Ace by the Economist Intelligence Unit. The report said businesses are failing to manage the risks they face in emerging markets. These markets will become increasingly relevant to the global market, the report said.

"This complacency is dangerous," the report said. "Volatility is a defining feature of emerging markets, and political risk will linger even as their contribution to global trade and economic activity grows."

Edwards said the renewed threat of expropriation recalls an earlier era, as do such factors as the return of international trade barriers, the rise in commodity prices and the accumulation of export-fueled hard currency reserves in such emerging markets as Russia.

"In a way, we are going back to the '70s," Edwards said.

Despite such trends, people still tend to view terrorism as the bigger threat. Edwards said clients will seek insurance against expropriation in Latin America, for instance, only after the issue has received wide news coverage.

"In reality, they should have done this five years ago," he said. "And there probably would have been a market there for them to do it."

In assessing markets, companies should also look beyond positive credit ratings that may be buoyed by hard currency reserves. Edwards questioned the favorable opinion in some circles, for instance, about doing business in Russia. "Where's the legal system?" he asked of the country.

Edwards also argued for the importance of due diligence and the management of relationships within emerging economies. There is too little understanding of reputational risk, he said, mentioning the plight of a company whose local operation provided trucks, under duress, to a government for the movement of troops during a conflict with rebel forces. The trucks were then used in the commission of atrocities, Edwards said.

Charles Berry, chairman of specialist insurance broker Berry, Palmer & Lyle Ltd. in London, agreed that expropriation is a threat to businesses operating in emerging markets. But political violence also remains a threat, Berry said, listing civil unrest in Bangladesh and southern China.