There isn't a single company in the world engaged in the international market place that doesn't need to know about Political Risk Insurance.

Between 1980 and 1990 the volume of foreign direct investment (FDI) quadrupled from $55 billion to $208 billion. In 2004 FDI outflows from the US hit $252 billion - the majority of which was invested in the developing world. It also points to a very strong interest in American companies acquiring corporate assets abroad.

Emerging market nations have presented international businesses with opportunities to expand into geographic areas which were previously off limits. However, these regions are often strewn with balance sheet threatening risks: risks which are inherent with the territory.

Higher margins means a higher risk - right? Wrong. Political Risk Insurance exists to cover these territorial, country risks.

Political risks arise from the unforeseen actions - or inactions - of a foreign government or government entity, your own government, or a third party country. These risks can severely impact the profitability of all types of contracts and investments. They can also affect the safe repatriation of profits and dividends and the repayment of facilities and loans to financing banks and lenders. These risks include:

• Currency inconvertibility - coverage protects against losses caused by currency transfer restrictions (local currency to hard currency, and transfer of hard currency out of the country). Typically, coverage applies to the interruption of scheduled interest payments or repatriation of capital or dividends due to currency restrictions imposed by the host government.
• Confiscation, Expropriation, and Nationalization - coverage protects against losses caused by various acts of expropriation that would deprive you of your rights of ownership or control of your assets. Coverage also applies to non-transfer of funds following your sale of an asset or disposal of an investment.
• Deprivation - an action taken by a host government that prevents the re-export of physical goods, inventory, production equipment or other assets. Although these items may not have been physically seized, inability to repatriate them makes them worthless.
• Political Violence - coverage protects against loss of income, loss of equity investments, damage / destruction of physical assets due to Political Violence, war, revolution, civil disturbance, rioting, or terrorism.
• License Cancellation - Investors can insure against cancellation of import / export / concessions licenses, as well as boycotts, sanctions or government decrees.
• Forced Abandonment - coverage compensates the insured for the value of assets / equipment left behind following a home government directive to leave a host country - in circumstances that are prejudicial to the safety of staff.
• Contract Frustration / Repudiation - protects trade transactions against non-payment by foreign Governments or public sector buyers, for goods or services (either before or after shipment). Similarly protects against non-delivery by public sector suppliers of goods bought on cash-in-advance terms by importers. Coverage is also available for non-delivery by a private-sector foreign supplier due to political events or government actions beyond its control.

There are a number of ways to protect your firm against Political Risks. Proper planning and due diligence are most important. Too many businesses begin operations in an unfamiliar country without having taken the time and devoted the resources necessary to ensure a better-than-average chance of success.

Political Risk Partners is alert to what is happening in the emerging markets where our clients have investments and hold assets and is here to ensure that they are properly covered in the event of unforeseen events in that region.

Political Risk Insurance provides real security for investors looking to maximize the potential for higher returns in emerging market countries.

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