Political Risk Insurance for Foreign Assets, Investment & Contracts
Political Risk Insurance policies are highly customized based on the investment exposure and country risk. Coverage varies depending on the asset being covered, but most claims arise from hostile action by a foreign government, war, political violence and political force majeure. In many cases, these political risk is specifically excluded in traditional corporate “all risk” policy forms.
Companies with business or investments overseas must accept and manage political risk. The keys to long-term financial success often lie in how these risks are managed.
Political Risks can include:
- War, revolution
- Political violence
- Strikes, riots
- Embargo or sanction
- Selective revocation of tax credits or incentives
- Wrongful calling of guarantee instruments
- Currency exchange blockage
- Selective legislation, penalty or taxation
- Forced abandonment
- Government buyer contract default
- Other acts of government that cause financial loss
The following are typical forms of Political Risk coverage:
Contract Frustration – protects against financial loss arising from non-payment of a receivable, loan or service agreement between a public, quasi-public or private buyer. Government action or political risk must cause the payment default.
Overseas Investment / Equity / JV Interest – covers the loss of foreign investment or interest because of government action and other political risks.
Currency Inconvertibility – covers debt repayment, dividends or return of capital against the blockage of currency transfer or legal exchange.
Overseas Contractor’s Plant & Equipment – covers contractors, project managers and global engineering firms from loss or forced abandonment of plant and equipment because of seizure, war, or other political risks.
Wrongful Calling of Guarantee – covers the wrongful calling of bid or performance bonds,
letters or credit or other demand guarantee instruments.
Overseas Mobile Assets – covers owners, lessors or security interest holders of overseas
commodities or other mobile assets against government action (typically seizure) and political force majeure.
Bond Coverage – covers non-payment of bond debt obligation caused by political risk.
Structured Trade – covers lenders involved in highly structured transactions against non-payment because of political risk or default caused by a political risk.
Loss of Earnings – similar to contingent business interruption coverage, covers earnings losses caused by a political risk event.