Political Risk Insurance Primer

Political risk insurance, writes Wikipedia, “can be taken out by businesses, of any size, having operations in countries in which there is a risk that revolution or other political conditions will result in a loss.”  

Major players in the political risk insurance market:  

I. U.S. Government

I’m taking my definition for “political risk” from OPIC, the Overseas Private Investment Corporation: “the possibility that political decisions or political or social events in a country will affect the business climate in such a way that investors lose a portion of their investment or expected return.”  As a U.S. Government agency established in 1971, OPIC provides programs to insure U.S. investors, contractors, exporters and financial institutions involved in international transactions against the risk of: (1) currency inconvertibility – the inability to convert profits, debt service, and other investment remittances from local currency into U.S. dollars or the inability to transfer funds; (2) expropriation – loss of an investment due to expropriation, nationalization, or confiscation by a foreign government; and (3) political violence – loss of assets or income due to war, revolution, insurrection, or civil strife.

II. Private Sector: Insurance “Brokers”   Agents who sell insurance products:  

1. Marsh: “In a world full of political uncertainty, mitigation of political risk is a significant factor in the success of overseas projects, investments, and contracts.   By obtaining coverage against possible losses resulting from political actions or inaction by the host government, more focus can be placed on measures to increase profit potential.”

2. AON: “For many companies, selling products around the world is highly profitable – margins are strong and demand is often brisk. However, the risks associated with global commerce can be dramatic. Changes in these regions can quickly result in significant risk to shareholder value.”  

III. Private Sector: Insurance “Underwriters”  Agents who give financial support/assume risks for paying costs associated with, insurance products:  

1. AIG Global Trade and Political Risk: “Offers Political Risk Insurance to enable companies to manage specific risks associated with international business operations.” 

2. ACE Group: “Political Risk exists as a fact of commercial life, as companies with overseas investments face a heightened risk environment.”  

3. Zurich Emerging Markets: “Zurich’s unit providing insurance solutions for emerging markets risks offers multinational corporations, investors, financial institutions, project developers and contractors protection from losses associated with political events in emerging markets”

4. Chubb: “Political risk insurance can help protect a company’s financial investment in countries that may lack political stability.”