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Unlocking the Power of Political Risk Insurance

S&P Global’s independent study, commissioned by Marsh, shows political risk insurance curbs country risk premium, improves valuation of investments in emerging markets, and enhances a project’s internal rate of return.

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12/03/2024 · 3 minute read

S&P Global’s independent study, commissioned by Marsh, shows political risk insurance curbs country risk premium, improves valuation of investments in emerging markets, and enhances a project’s internal rate of return.

Are you considering expanding your business into high-growth and/or high-risk territories? Or perhaps you are already operating in these markets? In either case, understanding the quantifiable benefits of political risk insurance (PRI) is crucial to your investment decision-making process.

S&P Global’s study reveals, for the first time, the significant impact that PRI can have in curbing the country risk premium (CRP), which must be factored into calculating a project’s expected return on investment. By curbing the CRP, PRI effectively improves the investment’s valuation and enhances its internal rate of return (IRR).

This updated understanding of the impact of PRI is game-changing. While PRI remains an important form of risk mitigation, it has typically been seen as a negative cash flow item. Far from a cost, S&P Global’s independent conclusions demonstrate the additional value of PRI — generating higher investment returns and asset valuations, particularly in emerging markets.

Traditionally, PRI has been undervalued due to a lack of quantifiable financial benefits. Now, leveraging S&P Global's Country Risk Investment Model (CRIM), this robust analytical framework  can evaluate the value of PRI to your organisation. By compartmentalising country risk into definable buckets and overlaying the mitigation provided by PRI, the approach demonstrates the benefits of PRI in reducing the project's future cash flow due to country risk. It provides you with a quantitative tool to make informed investment decisions.

The analytical framework used within the report empowers you to consider investments in projects in higher risk locales, even if they fall outside your traditional risk tolerances.

Key benefits noted in our report findings include:

Mitigates cash flow losses

PRI compensates for potential losses associated with ownership and operating rights, asset damage, dividend repatriation blocks, and state contract breaches. It safeguards your investments and protects your bottom line.

Lowers hurdle rate of return

S&P’s CRIM framework adequately compensates for country risk by incorporating a country risk premium into your discount rate. Our report shows how PRI justifies a reduction in that premium, enhancing your returns.

Quantifies risk reduction

S&P Global's model quantifies expected cash flow losses from all country risk sources, including those covered by PRI. This can lead to measures that improve the credit and country risk profile of your projects.

Enhances internal rate of return

Contrary to conventional wisdom, our analysis reveals that PRI actually enhances the internal rate of return of insured projects, which means that you can experience higher valuations, favorable investment finance terms, and other benefits.

Don't let political risk hinder your growth and profitability — unlock the full potential of PRI. A new perspective on the cost and benefits of political risk insurance for foreign direct investments is your roadmap to success in high-growth and/or high-risk territories.

With its comprehensive insights and actionable recommendations, you'll gain a competitive edge and maximise your returns. Download the report to take control of your investments and secure a prosperous future.

To read the full report, including the study methodology, please click below:

Download Report

About S&P Global

S&P Global (Nasdaq: INFO) is a world leader in critical information, analytics and solutions for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and solutions to customers in business, finance and government, improving their operational efficiency and providing deep insights that lead to well-informed, confident decisions.S&P Global has more than 50,000 key business and government customers, including 80 percent of the Fortune Global 500 and the world’s leading financial institutions. Headquartered in London, S&P Global is committed to sustainable, profitable growth.

The S&P Global economics and country risk team takes an intelligence-led approach to forecasting the full spectrum of commercially relevant political, economic, legal, tax, operational, and security risks, in 211 countries. They provide risk solutions that are data-driven, leverage data science and geospatial analytic tools, and are informed by the largest team of country, banking, and sector risk analysts in the market. The country risk team has more than 110 dedicated analysts and data scientists.

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