Political Risk Insurance

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Political Risk Insurance Political Risk Insurance Protecting International Investments

April 28, 2014


• Mitchell AucoinMitchell AucoinMarriott International Inc.

• Christopher BrophyChristopher BrophyFTI Consulting

• Sarah KeelingSarah KeelingFTI Consulting

Political Risk InsurancePolitical Risk InsuranceSpeakersSpeakers


What to ExpectWhat to Expect1. Gain insights into the risks businesses are facing

throughout the world.

2. Understand basic principles of Political Risk Insurance Coverage

3. Consider the cost-benefit of obtaining Political Risk Insurance.

4. Review specific issues that may arise on Political Risk Claims.


Political Risk InsurancePolitical Risk InsuranceAgenda

I.I. A Risky World A Risky World

II.II. The Basics of Political Risk Insurance The Basics of Political Risk Insurance

III.III. Weighing the Benefits of Political Risk InsuranceWeighing the Benefits of Political Risk Insurance

IV.IV. Specifics of Political Risk ClaimsSpecifics of Political Risk Claims


I.I. A Risky World A Risky World • Snapshot of challenging areas around the world.

• What does political risk mean to different parties?

- To an equity investor?- To a bond investor?- To a reinsurance company?

• Political Risk versus Positive Commercial Events


I.I. A Risky World A Risky World • The power of government relations and good governance

• “You are only an election or revolution away from being on the wrong side”

• Frontier markets: good opportunities or unmanageable risks?

• Risk: identity, understand, manage and insure against it

• Risks: corruption, expropriation, workforce instability, border disputes

• How to mitigate – the right relationships, understand your business’ standing

• Be a good corporate citizen


II.II. The Basics of Political Risk Insurance The Basics of Political Risk Insurance

Areas of CoverageAreas of Coverage•Expropriation

•Political violence

•Currency inconvertibility


II.II. The Basics of Political Risk Insurance The Basics of Political Risk Insurance • Offered by Private Insurers and Public Entities

• Standalone Coverage or Broader Based

• Country Limits

• Policy Term

• Waiting Periods

• Permanent Loss

• Supply Chain Disruption

• Mitigation of Losses


III.III. Weighing the Benefits of Political Risk Insurance Weighing the Benefits of Political Risk Insurance

Historical Objective – Until 2001, PR coverage was purchased (via OPIC & MIGA) to protect against confiscation, nationalization & expropriation of Marriott’s financial assets

- Fees - Guarantees - Receivables- Loans - Working Capital

Sept, 2001 - Marriott procured 3 yr policy that provided CEN, CI, PV & BI on global basis

2002 - Marriott has $300k potential CI claim that tests coverage and causes Marriott to rethink its application of PR coverage

2005 - After careful consideration & evaluation, Marriott terminates its global policy


III.III. Weighing the Benefits of Political Risk Insurance Weighing the Benefits of Political Risk Insurance Benefits•Helps offset investment risk in budgeting or financing of projects•May lower hurdle rate on project’s ability to move forward•Broader coverage terms increasingly provided by private markets

Challenges•Cost – can be expensive•Capacity – Insurers may restrict capacity for certain risks or countries•Does not mitigate financial risk (e.g. currency devaluation or inflation)•For Lenders, policy typically indemnifies principal & interest payments only (e.g. default interest, taxes, increased costs, etc. not covered)•Policies require disclosure of events that might give rise to a claim

When to Use?•After careful evaluation of business, contractual, and political climate•Opening new business (e.g. hotel) in historically unstable region•Investing in projects that require heaving permitting and licenses


IV.IV. Specifics of Political Risk Claims Specifics of Political Risk Claims

• Read your policy

• Put insurer on notice early

• Consider Waiting Period

• Manage Mitigation


Questions, Final Comments and Contact Information


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Political Risk Insurance

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Transcript of Political Risk Insurance