Canada’s uninsurable risk

The erratic renegotiation of the North American Free Trade Agreement (NAFTA) presents a risk to Canadian exporters, and it’s probably not insurable.

Risk managers at companies exporting to the United States and Mexico may be thinking of ways to mitigate losses if the tri-lateral North American Free Trade Agreement (NAFTA) were to lapse, but one political risk expert warns there is no insurance for such losses.

The potential dissolution of NAFTA is more of a business and risk issue than it is an insurance issue, according to James Gregory, Toronto-based regional director of Aon Crisis Management for Aon Reed Stenhouse.

“From a realistic perspective, the idea that one could buy insurance against the dissolution of NAFTA – I don’t think it currently exists as it stands,” Gregory said in an interview.

At press time, officials from Canada, the United States and Mexico were meeting in Mexico City for the seventh round of talks to renegotiate NAFTA, which took effect in 1994. The Montreal round of renegotiations wrapped up in January.

The implementation of NAFTA resulted in the elimination of tariffs on some goods sold among Canada, the United States and Mexico, among other things. It also provided for a dispute settlement mechanism.

A U.S. withdrawal from international trade agreements “could precipitate collapse of world trade,” Prem Watsa, chairman and CEO of Fairfax Financial Holdings Ltd. (parent company of Northbridge Insurance and OdysseyRe, among others), said during an earnings call.

Read the full article in the Digital Edition of the April 2018 Canadian Underwriter.

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