Cover for losses caused by acts of a foreign government, including expropriation, currency inconvertibility and political violence, primarily in emerging markets.
Political risk insurance protects investors and exporters against losses resulting from acts or failures attributable to a government or political situation in a foreign country. The cover addresses several distinct risks. Expropriation and nationalization refer to the partial or total confiscation of assets by a government without adequate compensation. Currency inconvertibility and transfer blockage prevent the repatriation of funds to the home country. Political violence encompasses armed conflicts, revolutions, riots and terrorist acts that physically damage assets. Sovereign non-payment covers state defaults on contractual obligations. Several specialized players operate in this market. MIGA (Multilateral Investment Guarantee Agency, a World Bank affiliate) is the leading multilateral provider. COFACE and Euler Hermes (Allianz Trade) operate on behalf of the French state. Lloyd's and London markets offer private cover. Political risk is particularly relevant in emerging markets in sub-Saharan Africa, Latin America and South-East Asia. It is assessed on the basis of country-risk ratings produced by specialized agencies such as PRS Group or Control Risks.
A French energy producer invests 200 million euros in a gas plant in West Africa. It takes out a political risk policy covering expropriation and currency inconvertibility. Two years later, a change of government leads to partial nationalization of the asset without compensation. The insurer indemnifies the loss on the basis of the net book value agreed at underwriting.
risque politique, political risk, expropriation, nationalisation, MIGA, COFACE