CIPR Homepage
Political Risk Insurance

Last Updated 3/4/2020

Issue: Rising nationalism and protectionism and political/economic instability in emerging markets have increased the demand for instruments to mitigate those risks that could cause catastrophic losses to investors. One such instrument is political risk insurance (PRI). Political risk may be defined as extra-economic changes arising strictly out of the political process, either through violent means (war, insurrection etc.) or through specific government action (new law and/or regulation) that can directly affect a company's operations and interfere with its ability to perform critical functions, such as meeting its financial obligations. Unlike commercial insurance, PRI is aimed to protect businesses and business ventures in countries and against perils that other conventional insurance policies would not normally cover.

Overview: Political risk insurance has a long history mainly as a government tool for reducing risks associated with foreign trade and direct investment. Recently PRI has become a critical component of an increasing number of emerging capital markets transactions involving both public and private insurance companies. A survey of 41 major corporations by broker Willis Towers Watson found that 61% believe political risk levels increased in 2019 while 68% have suffered a political risk loss. Moreover, the same survey found 32% of companies with revenues exceeding $1 billion reported experience of a catastrophic (more than $250 million) political risk loss.

Modern political risk insurance started taking form after the Second World War to promote investment under the Marshall plan. Since then and for over forty years PRI was dominated by bilateral institutions, such as the US Overseas Private Investment Corporation (OPIC), owned and operated by national governments for the benefit of their national private capital. A number of multilateral institutions, such as the World Bank's Multilateral Investment Guarantee agency (MIGA), also got involved in the PRI market in the late 1980s. Multilaterals act as financing conduits for regional and sector-specific economic development in their member-countries. Their mitigation of political risk comes mainly in the form of guarantees, either partial risk or partial credit.

While PRI is not exactly new, it has not yet developed to a fully mature market. Private insurers first appeared in the early 1970s and became more active after the debt crisis. The private political risk insurance market experienced a dramatic growth in the 1990s with international investors enjoying a great breadth and depth of choices in the investment insurance market than they ever had.  Today, private political risk insurers are concentrated primarily in the UK, USA and Bermuda.  The largest private insurers are Zurich American Insurance, Lloyd’s, AIG, Chubb and Sovereign. Currently, there are about 60 insurers operating globally offering PRI, according to Marsh. Having a large number of active insurers in the PRI market creates significant competition giving buyers the ability to choose the right coverage for the right price among many offerings. Capacity in the market, according to insurance broker BPL Global, has increased considerably over recent years.    Market capacity has jumped to over $1.5 billion per risk, providing both depth in monetary amounts and increasing breadth in terms of the number of different participating insurers. Over the past three years, overall PRI capacity has increased across all product lines – with maximum lines for non-payment private obligor risks and public obligor risks rising by 30% to $2.4 billion and $3 billion respectively.

Insuring an investment against political risk requires a proper and precise specification of those political events that are to be covered under an insurance policy. Once a political event occurs, coverage and the exact amount of insurance recovery should not and cannot be in dispute. Political risk insurers, public and private, offer a wide variety of products that can be specifically tailored to any investor's needs and can cover the entire range of politically induced risks.

Since there is no standard political risk insurance policy, PRI provides bespoke coverage against a variable bundle of perils that can include: expropriation of property; political violence; inconvertibility of currency; forced abandonment or forced divestiture; consequential financial loss; non-repossession of an asset; and trading risks.

Coverage can be long term or short term, depending on the risk. Trade risk coverage might last for only 30 days, but for a major infrastructure development might be for several years, though very few insurers will provide PRI coverage for longer than a 10-year period.

Status: In the filings of insurer investments in foreign infrastructure projects with the Securities Valuation Office (SVO) of the NAIC the question of political risk insurance is asked among others to assess the creditworthiness of the project in order to assign the appropriate NAIC Designation.

For questions or resolution of any issues that may arise regarding the sale and use of political risk insurance the NAIC Executive Office is the point of contact for all federal legislative/regulatory and international issues. The Executive Office works closely with key federal regulatory bodies to ensure coordination on regulatory matters and facilitate effective communication among federal and state regulators.

Committees Active on This Topic

Additional Resources

Political Risk Insurance
The Overseas Private Investment Corporation (OPIC)

The Political Risk Insurance Industry
Multilateral Investment Guaranty Agency (MIGA), World Bank Group

Investment Guarantees and Political Risk Insurance: Institutions, Incentives and Development
OECD Investment Policy Perspectives


Media queries should be directed to the NAIC Communications Division at 816-783-8909 or

NAIC Center for Insurance Policy and Research (CIPR)

CIPR Homepage