So what is this political risk insurance? Is it protection for Kevin, Julia or Tony making it back in office?
Not exactly.
And what are the key Political Risk Insurance “have-to-knows”?
Political Risk Insurance or ” PRI ” protects your offshore assets from damage or loss as a result of “political events ” . These political events come in all shapes and sizes, including a coup d’état and terrorist attacks. Also less violent political events such as freezing of a local currency, so you’re unable to convert out of the currency.
PRI protects the interests of the investors, contractors, lenders and banks. It is a long-term insurance typically over the life of a project or investment. For example, the establishment of a $250m oil refinery in Mozambique with a 10-year payback to offshore investors will typically have PRI for the whole period. Often the buyer of PRI cover is the lead lender, protecting their exposure.
PRI is a complex insurance combining both economic and social factors to determine the insurance risk. It has a lengthy research process to understand the risks and engage with stakeholders from national government level down to local level from where the workforce will be sourced. The insurance cover is generally required over a long period often 20 years or longer. PRI is quite well known in cross border investment circles and operates within an established network of internationally recognised companies, procedural standards and reference frameworks.
Political events five main protections
1. Violence – politically motivated violence including terrorism and forced abandonment
Many countries in emerging markets experience ongoing unrest. In 2012, Mali was cut in half by separatist / Islamist uprisings resulting in a military coup.
2. Contract impairment or government interference
In 2012, Indonesia put in place a ban on exporting unprocessed minerals in order to boost local processing activities.
3. Currency Freeze – inability to convert or transfer currency
In 2008 and going forward, Iceland introduced capital controls to cope with the global financial crisis.
4. Trade Freeze – inability to export or import
In 2010 / 2011, the Ivory Coast imposed sanctions to ensure transfer of power to the new government.
5. Nationalisation – confiscation, expropriation and discriminatory actions
In 2011, the Sri Lankan government fast-tracked laws resulting in the expropriation of 37 private companies.
In a nutshell, PRI protects a project’s overseas investments , provides greater confidence to invest in emerging markets and prevents business opportunities being lost to a competitor who can manage the risk better than yourself.
Our PRI leader is Melicia Weitsz, who holds a Masters in Peace and Conflict Studies (USyd).