Political Risk Insurance & Guarantees
Political Risk Insurance and Guarantees (PRI) allow exporters, investors and lenders to transfer risk – partly or fully – to a third party that is better able to bear the risk. These might include private insurance companies, public bilateral and multilateral agencies.
PRI will typically cover losses caused by political events such as:
- Breach of contract
- Currency inconvertibility
- Political violence
- Adverse changes of regulations
- Arbitration award default
The market for PRI issuance remains relatively small, despite the entry of new market players. The combined PRI issuance of the top five private and bilateral providers and top two multilateral providers accounted for 95% of PRI issuance from all Berne Union members in 2012, and the two largest bilateral providers accounted for 77% of all bilateral PRI issuance and 57% of total issuance (MIGA, 2014).
The main stakeholders include:
- Beneficiaries – can be the direct buyer or a third party such as a commercial bank (which might be concerned about credit risk, hence seeking PRI cover to reduce the losses given the borrower’s defaults on the debt service)
- Insurance providers
- Project sponsors and other equity providers – will seek to reduce investment risks which derive from the loss of equity, investments or revenue streams.
The main providers of insurance and guarantees are:
- Multilateral agencies such as the Multilateral Investment Guarantee Agency (MIGA) and Asian Development Bank (ADB)
- Bilateral agencies such as Export Credit Agencies (ECAs) and Export-Import (Ex-Im) banks
- Bilateral agencies specifically in ASEAN Member States
- Private insurance companies