Political Risk Insurance - Panorama Insurance Brokers

Political Risk Insurance

Panorama Insurance Brokers (PIB) provide access to the largest and most experienced Political Risk Insurance teams in the London market. The company has unparalleled expertise in emerging markets and Political Risk Insurance is core to that offering. The PIB team focuses on enabling project sponsors to arrange finance in a wide variety of sectors from construction, infrastructure, power and increasingly innovative renewable energy networks. By arranging Political Risk Insurance for Equity and Debt investors, our role is to offer alternatives in transferring the underlying risk of their investments, to specialist insurers.

What are Political Risks?

Political Risk is defined as the threat that political changes may affect the profitability or viability of an investment. This may be broken down into three major categories:

  • Inconvertibility – conversion and transfer
  • Expropriation – confiscation and nationalisation
  • Political Violence – assets and business income loss

Currency Inconvertibility

Covers the inability to;

  • convert local currency into “hard” currency – usually U.S. dollars
  • transfer local earnings out of the host country

Examples:

  • Excessive delays in converting local currency to U.S. dollars caused by host government action or failure to act
  • Adverse changes in exchange control laws or regulations, or
  • Deterioration in conditions governing the transfer of local earnings (but may not include devaluation)

Expropriation

Covers the loss of an investment due to an act or acts by the host government that deprive the investor of its fundamental rights in the investment. It includes expropriation, nationalisation or confiscation by the host government.

  • Coverage includes both direct and “creeping” expropriation
  • Contracts with foreign government entities can be insured against expropriation via breach of contract, including non-payment of an arbitrary award and denial of justice.

Political Violence

Insurance covers against loss of assets or business income due to political violence, including but not limited to: war, revolution, politically motivated civil strife, terrorism and sabotage. • Can provide coverage for temporary loss of use of assets, damage to or loss of use of critical infrastructure, extraordinary expenses, and forced abandonment

Why purchase Political Risk Insurance (PRI)?

  • To protect your balance sheet against sizeable, unpredictable losses when trading in high risk / high reward territories.
  • To support expansion of your business while offsetting higher country risks. • To facilitate the approval of bank finance.
  • To reduce the overall cost of funding using insurance as security.

Cover can include the following risk headings:

  • Confiscation, Expropriation, Nationalisation, Deprivation.
  • Political Violence.
  • Currency Inconvertibility/Non-Transfer of Funds.
  • Arbitration Award Default (where international courts award in favour of the insured, and the counterparty under the award, defaults on their subsequent obligations).
  • Project Finance Cover (where there is non-payment by the project company to the lenders).

Some key points to consider for investors seeking political risk coverage;

  • Political risk cover is only available to foreign investors – cover cannot be provided to local entities against actions/inactions of their own government.
  • Depth, capacity and pricing on a typical 7 year tenor for political risk cover can vary widely dependent on the territory concerned, the underlying investment and the status of the counterparties.
  • Investors should adopt a pragmatic approach to their choice of currency to limit unexpected adverse exchange rate movements.

PIB offer a wealth of experience in risk transfer solutions for emerging markets. We are available to assist where required.

To do so, we typically require:

  • Full project details, ideally in a project memo.
  • Clarity on the parties involved, both equity and debt.

PIB aim to be mandated to place insurance on behalf of project sponsors/lenders. In so doing, we are happy to sign Non-Disclosure Agreements, as required.

Call a Panorama global insurance consultant today on
+44 (0)207 692 0642
for more information, or a no obligations discussion on your project