An international investment almost always runs through at least one interposed company, and rarely for insurance reasons. One interposes for tax purposes, to benefit from a treaty, to organise an exit, to ring fence an asset from the rest of the group. Each of those reasons is good and none was weighed against the question this module poses: when the host state takes the plant, who exactly has suffered a loss, and is that person the insured?
The chain describes itself simply and it is its simplicity that misleads. The state takes the asset of a local operating company. That company belongs to an intermediate holding in a third country. That holding belongs to the parent that placed the policy. Each of those entities is a distinct legal person, and company law does not know the transparency ordinary language uses when one says the group has lost its plant. The parent has not lost a plant, it still holds one hundred per cent of a holding that still holds one hundred per cent of an operating company, which has lost a plant.
That is the argument the insurer makes, and it should be taken seriously rather than found formalistic: the insured has lost only shares, whose value has fallen. The answer lies in insurable interest, which is wider than ownership. A shareholder has an insurable interest in its subsidiary's property because its destruction causes it a measurable financial loss, and that solution is old and settled. The argument therefore does not bear on the existence of an interest, it bears on what is insured and on how it is measured, which is a question of drafting.
Three drafts circulate and they do not give the same result. The policy may insure the underlying asset, naming the plant and its operator, the insured being the party placing the cover; the measure is then the value of the property. It may insure the interest held, and the measure becomes the value of the shares, with all the discounts attaching to them. It may finally insure the investment in a wide sense, a contractual notion defined in the policy and often including capital contributions, shareholder loans and undistributed dividends. An investor believing it insured its plant and having signed the second draft discovers at the loss that it insured a shareholding in a third country.
A difficulty peculiar to the chain then appears and it explains many declinatures. Policies name the insured and often, separately, the company whose assets are covered. If the intermediate holding was created or altered after inception, or if the interest was contributed from one entity to another within the group for tax reasons, the chain described in the policy no longer describes the real one. Such internal restructurings are frequent, they are decided in the tax department, and they almost never reach the person who keeps the policies. It is a cause of uncovered loss that is entirely domestic, with the host state playing no part in it.
It should be added that where the intermediate holding sits produces effects beyond insurance, which a professional must know how to flag even outside its own field. It decides the applicable treaty, therefore the existence of a remedy against the state, therefore the value of the subrogation the insurer believes it is buying. It decides the tax treatment of the indemnity, a sum received at parent level and one received at holding level not sharing the same fate. And it may bring the cover under a denial of benefits clause, where the treaty withdraws protection from a company with no real activity in the country hosting it.
The measure of loss finally raises a technical question better settled in calm. If the policy insures the shares, their value is computed after debt, which produces a disconcerting result: a heavily indebted operating company can see its share value fall to zero even though the asset taken was worth much more. The insured is indemnified for the value of the shares, not that of the plant, and the gap is exactly the amount of the debt. On a project structure that gap is the substance, which is why the question of who is insured and on what is not settled at the time of loss.
Three checks close this module and they fit in one meeting. Write out the real ownership chain and compare it, entity by entity, with the one the policy describes. Read whether the insured object is the asset, the interest or the investment in the contractual sense, and know which of the three measures will be received. And have whoever keeps the policies warned before any internal restructuring, because it is the most frequent cause of non cover and the only one entirely within the group's own hands.
A Spanish industrial group holds a cement works in a North African country. The chain is as follows: the Spanish parent holds a Cypriot holding company created in 2019, which holds 100 per cent of the local operating company. The political risk policy, placed in 2018 by the Spanish parent, names the parent as insured and as insured object the interest held in the local operating company, for 90 million euros. The Cypriot holding was interposed in 2019 on tax advice, without the department keeping the policies being informed. The operating company carries 62 million of local bank debt. In February 2026 a decree transfers the cement works to a public agency. The value of the asset taken is estimated at 105 million. The insurer raises two grounds. What are they worth?
Both grounds are serious and they do not have the same remedy, which requires separating them. The first concerns the chain: the policy describes an interest held by the Spanish parent in the operating company, yet since 2019 the parent no longer holds that interest, it holds a Cypriot holding which holds it. The named insured is therefore no longer the owner of the insured object as the policy describes it. That is not formalism, it is an alteration of the risk during the contract and never disclosed, exposing the insured at least to proportional reduction and, depending on the drafting and the applicable law, to an argument about cover itself. The remedy is weak because it is retrospective: one will argue that the parent's economic interest remained identical, that the interposition was neutral in tax terms as regards the insured risk, and that the insurer suffered no prejudice since a Cypriot location did not worsen the political exposure. That argument may succeed, it should never have had to be made, and the cause is entirely domestic: a tax department decision that never reached the person keeping the policies. The second ground concerns measurement and is heavier still. The insured object is the interest, not the asset, so loss is computed on the value of the shares, which is established after debt: 105 million of asset less 62 million of local bank debt, an order of magnitude of 43 million, far short of the 90 million insured, and before the discounts the insurer will raise. The insured discovers at the loss that it insured a shareholding and not a cement works, and the 90 million sum insured, probably calculated on the asset's value, merely measures the gap between what it thought it was buying and what it bought. Both grounds illustrate the same lesson taken from two ends: this file was decided in 2018 in the choice of a wording and in 2019 in a tax meeting, and nothing that happened in February 2026 was still capable of being changed.
- 01Company law does not know the transparency of ordinary language: the parent has not lost a plant, it holds shares whose value has fallen.
- 02A shareholder's insurable interest in its subsidiary's property is settled; the argument bears on the insured object and its measurement, therefore on the drafting.
- 03Three objects circulate under similar vocabulary: the underlying asset, the interest held, the investment in the contractual sense. They do not yield the same amount.
- 04An internal restructuring decided in the tax department and never passed to whoever keeps the policies is the most frequent cause of non cover, and the only entirely domestic one.
- 05If the policy insures shares, loss is computed after debt: on a project structure, the gap with the asset's value is exactly the amount of the debt.