An indemnity is normally a sum of money, and one forgets that most policies reserve other ways for the insurer to perform. In this field the form they take is peculiar: rather than paying and then pursuing the state, the insurer offers to take over the asset or the shares, to substitute itself entirely for the insured in the dispute, and sometimes to share with it whatever the state eventually pays. The insured receives a smaller sum and leaves the file for good. It is an assignment of a claim dressed as a settlement, and it deserves to be assessed as such.
Why an insurer proposes this becomes clear by looking at what it buys. It converts an uncertain claim against a state into ownership of a dispute it will run itself, on its own horizon, counted in years rather than quarters. Above all it escapes the quantum argument: instead of negotiating the asset's value with an insured that defends it, it fixes an exit price and takes the rest of the road for its own account. On a file where value is disputed and the remedy promising, that construction is often more favourable to it than a classic settlement followed by subrogation.
What the insured gains is real and must be named before the drawbacks are listed. A clean, rapid exit, with no ten year arbitration to fund and follow. The end of a political entanglement with a state in which it may still operate elsewhere, which has a value no accounting line carries. The ability to redeploy teams and capital at once. And the disappearance of a doubtful asset from the balance sheet, which is sometimes a finance department's real motivation and deserves saying rather than pursuing in silence.
What it loses is the upside, and that loss is hard to price because it bears on improbable, enormous outcomes. If the measure is revoked, if the arbitration succeeds beyond expectations, if the state settles high for diplomatic reasons, the proceeds go to the insurer, and the insured receives only the share written into the sharing clause. That clause reproduces exactly the difficulties seen in relation to the treaty remedy: the fate of ten years of interest, which represents a considerable part of the total, the allocation of costs before sharing, and above all the designation of who decides whether to accept a settlement offer.
An obstacle peculiar to this subject deserves stating, because it is often discovered after signature and it empties the transaction of its object. The insurer takes over shares or an asset the state has just seized. The transfer of those shares must be recorded somewhere, in a register kept by that same state, which has no reason to record a transfer in favour of the party about to sue it. The insurer may therefore end up holding a right no authority recognises, in the country where it must exercise it. The construction that avoids that obstacle is an assignment of the indemnity claim rather than of the shares themselves, and that drafting nuance decides whether the whole thing is feasible.
A constraint on the insurer's side is added, unknown to the insured and explaining certain reversals. An insurer is a regulated undertaking with a constrained balance sheet: holding an industrial interest in a country under strain does not sit naturally within what its prudential supervision accepts to count as an admissible asset. It may therefore negotiate a takeover for months, then withdraw because its own finance department refuses the balance sheet entry. Better to ask the question early than discover it late.
One last pitfall waits and it is purely domestic. Assigning shares is a disposal, with a tax treatment that is not that of an insurance indemnity, and the gap can be considerable depending on where the holding company sits. A group accepting a takeover without doing that arithmetic may find the tax difference absorbs the time saving it was buying. The question takes one meeting and is settled before signing, not after.
This module closes on a way of presenting the choice, which is worth more than a recommendation. A settlement in kind is neither good nor bad, it is an exchange of the uncertain for the certain, whose price is the upside and whose value depends on two things only the insured knows: the probability it attaches to the remedy succeeding, and what it is worth to it to stop being in dispute with that state. An adviser who puts those two questions before discussing the amount is doing the job; one who merely compares the figure offered with the value of the asset is not.
An Italian group held 100 per cent of a food processing plant in a South Asian country, expropriated by decree in April 2025. The asset's value is estimated between 60 and 95 million euros depending on the method; the policy limit is 80 million. The insurer proposes two routes. A classic settlement of 62 million, after a quantum investigation it estimates at eight months, with ordinary subrogation. Or an immediate takeover: 48 million paid within sixty days, assignment to the insurer of the local company's shares, the insurer running the treaty arbitration alone, and 30 per cent of net proceeds remitted to the insured above 48 million. The group still operates two plants in the country. What must be examined, and in what order?
Comparing the two figures is what must be refused first, because it takes up all the room and is the least decisive element. Three questions come before it. The first is feasibility, and it can kill option two before any discussion of value: the assignment covers the shares of a local company, and their transfer must be recorded in a register kept by the state that has just expropriated and that the insurer is about to sue. Nothing obliges that administration to record it, and an insurer holding a right unrecognised in the country where it must exercise it has bought nothing. One must therefore ask that the transaction cover the indemnity claim rather than the shares, a drafting nuance that decides everything, and check along the way that the insurer's balance sheet really accepts that entry, failing which it will withdraw in three months. The second question is one only the group can settle: it still operates two plants in that country. Personally running a ten year arbitration against that state while operating there is a costly position in a way that appears on no table, and the value of being relieved of it may well exceed the immediate 14 million gap. That is the real subject of the file and it must be put to the committee, not glossed over. The third is tax and purely domestic: assigning shares is a disposal, whose treatment is not that of an insurance indemnity, and depending on where the holding sits the gap may absorb part of the time saving. Once those three questions are handled, the arithmetic comparison becomes readable. Option two is worth 48 million certain within sixty days, plus 30 per cent of uncertain proceeds ten years out; option one is worth 62 million in eight months, plus the whole of a remedy the group must fund and follow. The sharing clause must then be read with the same rigour as the one seen for the treaty remedy: the fate of ten years of interest, which weighs heavily, the allocation of costs before sharing, and above all who decides whether to accept a settlement offer, failing which the 30 per cent will bear on an amount the insured had no say in defending.
- 01A settlement in kind is an assignment of a claim dressed as a settlement: the insurer buys ownership of a dispute and escapes the quantum argument.
- 02The insured exchanges the uncertain for the certain, and the price of the exchange is the upside, which is hard to value because it bears on improbable, enormous outcomes.
- 03Taking over SHARES requires registration in a register kept by the state one is about to sue: assigning the indemnity claim avoids the obstacle, and that nuance decides feasibility.
- 04An insurer is a regulated undertaking: holding an industrial interest in a country under strain does not sit naturally on its balance sheet, and it may withdraw late.
- 05Two questions come before the figure, and only the insured can answer them: what probability it attaches to the remedy, and what it is worth to stop being in dispute with that state.