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Political Risk Insurance


Last Updated: 6/13/2023
Issue:  Political risk insurance (PRI) is defined as a tool for businesses to mitigate and manage risks arising from the adverse actions—or inactions—of governments. As a risk mitigation tool, PRI helps provide a more stable environment for investments into developing countries, and to unlock better access to finance. Political risk may be defined as economic changes arising from events either directly or tangentially related to the political process. Some examples of events covered  by political risk insurance include government expropriation, war, insurrection, terrorism, sovereign payment default, breach of contract, and specific government action (new laws and/or regulations) that can directly affect a company's operations and interfere with its ability to perform critical functions. Unlike commercial insurance, PRI is aimed to protect businesses and business ventures against perils that other conventional insurance policies would not normally cover. Due to the unpredictability of many political events, PRI offers businesses an ability to cushion the impact and increase long-term durability, especially when operating in emerging economies.  

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 50 major corporations by broker Willis Towers Watson found that 92% experienced a political risk loss in 2022, up from only 35% in 2020. Moreover, the same survey reported that 48% of respondents experienced a direct political loss in at least one BRICS (Brazil, Russia, India, China, South Africa) country in 2022 and that 68% now purchase PRI, a significant increase from 25% in 2019.

Modern political risk insurance started taking shape after World War II to promote investment under the Marshall plan. 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. Numerous multilateral institutions, such as the World Bank's Multilateral Investment Guarantee agency (MIGA), also participated in the PRI market in the late 1980s. Multilaterals function 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 credit. 

While PRI is not exactly new, it has not yet developed into 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 greater abundance of choices in the investment insurance market.  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. According to Marsh, there are currently approximately 60 insurers operating globally that offer PRI. Having a plethora of active insurers in the PRI market creates significant competition, which gives buyers the ability to choose individualized coverage at a less exorbitant price. 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 $3.3 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. To receive payment for loss, the event in question must have been triggered by political action, although the exact meaning of “political action” is often equivocal. 

Political risk insurers 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. Political risk insurance can be obtained through both private and public providers. Private providers typically offer coverage related to developing and developed countries, and the coinciding risk-events that can occur while conducting business in these places. Most public providers are national export credit agencies (ECAs), which often act as intermediaries between governments and exporters. ECAs may cover both export credit/trade transactions, as well as longer-term investments.  

Depending on the risk, coverage can be long- or short-term. Trade risk coverage might last for only 30 days, but for a major infrastructure development it could last several years. Although it should be noted that very few insurers will provide PRI coverage for longer than a 10-year period. 

In January 2021, Allianz SE, a financial services company based in Munich, Germany, discussed political risk and its current relevance: "Political risks and violence returns to the top 10 of the Allianz Risk Barometer for the first time since 2018, reflecting the fact that civil unrest incidents such as protests and riots now challenge terrorism as the main political risk exposure for companies. The number, scale and duration of many recent events has been exceptional, such as the “yellow vest” protests in France (insured losses around $90mn), as well as unrest in locations like Hong Kong ($77mn), Chile (about $2bn) and Ecuador ($821mn).”  The emergence of political hostility and violence is also increasing in the United States.  This is exacerbated by issues such as the COVID-19 pandemic, the rise of the Black Lives Matter and similar social justice movements, and other unrest related to the 2020 United States presidential election. The propensity toward this heightened political unrest pushed the United States’ ranking on the Verisk Maplecroft Civil Unrest Index down from the 91st riskiest jurisdiction to the 34th. 


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 posited to assess the creditworthiness of the project in order to assign the appropriate NAIC Designation. 

For questions or resolutions about issues 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 to facilitate effective communication among federal and state regulators. 


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