In today's global economy, executives recognize that investment opportunities in foreign markets bring new risks not encountered in domestic regions. Whether a company is entering an overseas market for the first time, or is an experienced multinational with extensive international activities, the issue is how to take advantage of these opportunities without risking the company’s balance sheet. Typical transactions that may be vulnerable to unforeseen political events include equity investments, bank loans, bond guarantees, export and import transactions, and capital market placements.

Below are some examples of the types of political risk coverage available:

Asset-Based Risks

Confiscation, Expropriation, Nationalization, Deprivation (CEND) - Loss of ownership or control of an investment as a result of discriminatory acts by the host government. Forced Divestiture or Forced Abandonment - Permanent divestiture of an investment due to a directive by the government of the insured’s country or abandonment of an investment as a direct result of political violence in the host country.

Political Violence - Physical damage to the assets of a foreign operation or the inability to honour debt service obligations due to strikes, riots, civil commotion, malicious damage, war, civil war, or terrorism.

Trade-Related Risks

Currency Inconvertibility - Host government controls which prohibit the conversion of currency or the transfer of currency out of the country, and hence, interrupt the flow of loan payments, earnings, dividends, management fees, etc.

Import/Export License Cancellation, Embargo - Illegal cancellation of an import or export license for goods or technology by the host government.

Contract Frustration - The non-fulfilment of a contract due to "political events" including export/import license cancellation, embargo, expropriation (CEND), war, currency inconvertibility, or non-honouring of a letter of credit.

Securitizations

Credit Enhancement of Debt Issues - Enhances the credit rating of debt issues by mitigating the political uncertainty with respect to loans for projects in emerging economies, reducing the borrowing cost to the issuer.