political risk insurance: opportunities and pitfalls law offices robert wray pllc 1150 connecticut...

Political Risk Insurance:

Opportunities and Pitfalls

LAW OFFICES

robert wray PLLC1150 connecticut avenue, nw ● suite 350

washington, dc 20036main 202.349.5000 ● fax 202.293.7877

Political Risk Insurance:

Basic Coverages• Currency Inconvertibility• Expropriation• Breach of Contract/Disputes• Political Violence

robert wray PLLC

The Political Risk Insurance Marketplace

• Public sector– Deterrence– Innovation

• Private sector – Absence of public policy constraints– Speed– Commercial opportunism

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Currency Inconvertibility

• Convertibility and transfer of debt service, dividends, etc.

• Active or passive blockage• Not devaluation coverage –

prevailing rate

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Currency Inconvertibility: Pitfalls

• Waiting period• Rate at which compensation for

blocked local currency is calculated

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Expropriation (“CEN”)• Various wordings, same general intent• Loss of fundamental rights (including

creditor’s rights)• Outright and “creeping” expropriation• Exclusion for bona fide government acts• Exclusion for government commercial

acts

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Expropriation: Pitfalls• Wording ambiguity• Exclusions• Total vs. partial loss coverage• Pledge of shares

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Breach of Contract/Disputes

• Plugs government commercial obligation exclusion hole

• Specific government obligations• Failure to honor arbitration award

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Breach of Contract/Disputes:

Pitfalls• No better than the underlying agreement with the government– What you can recover– The arbitral forum

• Typically no faster recovery than the arbitral forum allows

• Inability to obtain a timely (or any) award

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Political Violence• Broad spectrum of events: from war to

civil commotion, including terrorism• Causing a loss

– For loans: default– For equity: damage or inability to operate

• Book/replacement value compensation for damage• Lost income or investment book value for inability to

operate

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Political Violence: Pitfalls

• Disputed causation• Damage to what?• Loss without damage

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Some General Issues• Waiting periods• Percentage of coverage• Term• Exclusions and limitations• Claims arbitration• Creditworthiness

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Pitfalls and Opportunities

• Choosing the right insurer for the transaction and the buyer (price isn’t everything)

• Negotiating the terms and wording• Breaking new ground• Managing the claims (and incipient

claims) process

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