An earlier module showed what a one year policy leaves the insured to carry on a fifteen year asset: renewal risk. This one takes a blunter and less known question: what can an insurer do while the contract is running? An investor that obtained a firm three years believes it bought three years of quiet. The country deteriorates in the eighth month, it receives a letter, and discovers what its policy allows the other party to do without asking it.
Three mechanisms exist and they are unlike one another, which makes confusing them costly. Cancellation for increase in risk lets the insurer end the contract where objective circumstances change beyond a described threshold. A periodic cancellation right lets it leave on an agreed date, often annual even in a three year policy, without having to give any reason. And a premium review clause lets it stay while changing the price or the deductible, which produces the same effect while leaving the insured to decide to go itself.
The second is the most frequent and the worst understood, because it contradicts what the word term suggests. A three year policy cancellable annually by either party is a one year policy renewed twice, of which only the insured is committed for three. The asymmetry is not always intended: it often comes from a comparison table displaying a term and not a right. It is the first place to look when one wants to know what was bought, and it is read in thirty seconds.
Cancellation for increase in risk calls for finer examination, because it carries a condition the insured can argue. It presupposes a change of circumstances after inception, objective, and generally such that the insurer would not have contracted or would have done so on other terms. In this field the difficulty is that a country's deterioration is rarely an event: it is a slope, and a slope has no date. An insurer invoking an increase must therefore name what changed and when, and a well advised insured will ask precisely that, because the answer is often a rating agency note rather than a fact.
One must then say what actually protects, and it is not good will. A non cancellation clause, depriving the insurer of any exit save non payment of premium, exists and is negotiable; it costs, and that cost is exactly the price of the option the insurer gives up. A long notice period, six months rather than thirty days, does not stop it leaving but gives time to place elsewhere, which is often what really matters. And a clause maintaining terms where a claim is in progress prevents a cancellation pronounced during the investigation from affecting the open file.
That last point deserves isolating because it produces one unfounded worry and one founded worry that must be told apart. Cancelling a policy does not extinguish a claim already notified: the triggering event occurred during the period of cover, and cover remains attached to it, the investigation continuing after expiry. That is the unfounded worry. The founded one concerns facts occurring after cancellation, particularly where a series of measures continues: an investor in a creeping expropriation whose policy stops in the middle of the series is left with a chronology cut in two, only half of which is covered.
A practical consequence follows and it is counterintuitive. When an insured receives notice of cancellation on a deteriorating country, the first step is not to negotiate continuation, it is to check whether a triggering event has already occurred and to notify it before expiry. A measure judged premature to notify, a refused permit renewal, a transfer application left unanswered, change status when cover is about to end: notifying them costs little and staying silent costs everything, since after expiry they will no longer be notifiable.
Three steps close this module and the first is the reading that was not done. Look in the policy for the cancellation right and its notice period, before looking at the stated term, on every policy in force and not only on the one causing concern. Negotiate the notice period rather than the impossibility of leaving, because six months of notice costs less than a non cancellation clause and is often enough to place elsewhere. And on receiving a notice, notify everything notifiable before expiry, including what one would have let ripen.
A European fertiliser producer places in January 2025 a three year political risk policy on its plant in a South Asian country, for 220 million euros. The broker presents the policy as a firm three year commitment; it contains, at article 14, a right for either party to cancel at each anniversary on sixty days' notice. In March 2025 the plant's export permit is not renewed and a quota is introduced; the insured judges the measure inconvenient but not a loss, and does not notify. In June 2025 an agency downgrades the country's sovereign rating by two notches. On 2 November 2025 the insurer gives notice of cancellation effective 1 January 2026. In February 2026 a decree nationalises the plant. Where does the insured stand?
The file turns on what was not notified between 2 November and 1 January, and that must be said before anything else. On the cancellation itself there is almost nothing to contest: article 14 opens a right at each anniversary with no duty to give reasons, the sixty day notice was observed to the day, and the broker having presented the policy as a firm three year commitment binds the broker and not the insurer. The three year policy was a one year policy renewed twice, and only one of the two parties was committed for three. The question of the February 2026 decree is likewise closed: it occurs after expiry, cover no longer existed, and no construction will recover that. The real subject remains, and it is earlier. The facts of March 2025, non renewal of the export permit and introduction of a quota, occurred during the period of cover. Depending on the wording they could constitute either a loss or at least circumstances likely to give rise to a claim, and the insured did not notify them because it judged them merely inconvenient. That judgment was defensible in March and was no longer so on 2 November: on receiving notice of cancellation, everything notifiable must be notified before expiry, because cover is about to cease to exist and those facts will no longer attach to anything. Sixty days remained during which notification was still possible, and nobody made it. The course to take today therefore consists in examining whether a late notification of those March 2025 facts remains admissible, which depends on the governing law and on whether the insurer can show prejudice from the delay, and in building the chronology linking March 2025 to February 2026 as a single creeping expropriation whose triggering event falls within the period of cover. It is a difficult file and it is not an empty one. The lesson for the group's other assets is one line long: read the article carrying the cancellation right before reading the stated term, and negotiate six months' notice rather than a term that binds one party only.
- 01A three year policy cancellable annually is a one year policy renewed twice, of which only the insured is committed for three.
- 02Three distinct mechanisms let the insurer leave or change terms: increase in risk, the periodic right, and premium review which makes the insured leave of its own accord.
- 03A country's deterioration is a slope and not an event: an insurer invoking an increase must say what changed and when, and the answer is often a rating agency note.
- 04Cancellation does not extinguish a claim already notified, but it cuts in two the chronology of a creeping expropriation still under way.
- 05On receiving notice, the first step is not to negotiate continuation: it is to notify before expiry everything one would have let ripen.