Political Risk Insurance | Practical Law

Political Risk Insurance | Practical Law

Political Risk Insurance

Political Risk Insurance

Practical Law Glossary Item 1-383-2211 (Approx. 3 pages)

Glossary

Political Risk Insurance

One of several risk mitigation tools available to investors involved in cross-border transactions, political risk insurance (PRI) insures lenders and equity investors from and against losses they incur as a result of, among other things:
  • The nationalization or expropriation of their assets by the host government (including real property, bank accounts, and equity securities).
  • The inability to convert local currency into the required foreign exchange or to remit foreign exchange outside of the host country (known as currency inconvertibility).
  • Political violence, including war, revolutions, and political strife.
  • Acts of terrorism.
  • The breach of a contract or non-honoring of its obligations by the host government.
The cost of this insurance depends on the nature and location of the insured asset, the type of insurance coverage sought, and the nature of the insurer. PRI can be obtained from private sources such as Lloyds of London and Sovereign Risk Insurance Ltd. and from public or governmental sources such as the Multilateral Investment Guarantee Agency and the Overseas Private Investment Corporation.
For more information on PRI, see Practice Notes, Political Risk Insurance: Is it Necessary? and Identifying and Managing Project Finance Risks: Political Risk.