The COVID-19 pandemic’s unprecedented economic and political shocks, and the geopolitical landscape’s steady state of the last 50 years rapidly giving way to evolutionary shifts, are two of many changes that have made the international operating environment less predictable.
The seeming political tranquility of countries and regions can now erupt quickly – not only in the traditional developing world, but also in the advanced economies. Multinational organizations and financial institutions must now elevate their awareness of the challenges inherent to conducting business in geographies and markets that may now be of greater concern.
In the realm of political risk, where it can often be challenging to obtain coverage given the stakes involved, Marsh’s global footprint and regional specialist hubs can assist you. Our solutions can help protect you against non-payment risks, whether private or sovereign, or shield your corporate assets and investments in various countries from political risk.
By working with us, you can be better prepared to manage and recover from any government actions or events that might impact on your global assets and investments.
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Political risk at sea
21/03/2022
FAQs
Political risk is the probability of disruption to the operations of multinational enterprises caused by political events occurring in-country or by changes in the international environment. Your organization may face political risk in a country where you have operations, assets, contracts, or investments.
A political risk insurance (PRI) policy serves to indemnify institutional investors, businesses, or financial institutions from government actions that lead to significant monetary losses. It is typically purchased in relation to project finance, asset finance, trade finance, fixed and mobile assets, and foreign direct investment, particularly in the oil and gas, mining, and infrastructure sectors. Depending on the risk, PRI coverage could involve public agency providers, private insurers, or a combination of both.
PRI coverage acts as a safety net against policy decisions or actions by a government or political forces. It can cover risks such as:
- Political violence, which typically includes civil war, coup d’état, insurrection, revolution, sabotage, strikes and riots, terrorism, and war that cause physical damage to, or abandonment of, assets or operations and the related loss of business income.
- Expropriation by the government of assets or operations, including a prevention of repossession of assets by a creditor.
- Restrictions on the conversion of local funds to hard currency, or the transfer of funds offshore, as part of remitting dividends, debt service, or other cash flows generated in-country to an insured.
- Arbitration award default related to breach of contract by a government entity.
- Credit risks, such as sovereign non-payment.
Any corporation (including commodity traders), bank, non-bank financial institution, or public agency with international assets or investments should consider political risk insurance.
Political risk insurance enables you to mitigate your risk, and provides comfort for contracts, investments, projects, operations, assets, equipment, and stocks of commodities in higher growth but volatile markets. It can facilitate debt financing, the making of equity investments, and the backing of foreign projects or investments in higher risk countries.