Political risk insurance
Encyclopedia
Political risk insurance is a type of insurance
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...

 that can be taken out by businesses, of any size, against political risk
Political risk
Political risk is a type of risk faced by investors, corporations, and governments. It is a risk that can be understood and managed with reasoned foresight and investment....

—the risk that revolution or other political conditions will result in a loss.

Political risk insurance is available for several different types of political risk, including (among others):
  • Political violence, such as revolution
    Revolution
    A revolution is a fundamental change in power or organizational structures that takes place in a relatively short period of time.Aristotle described two types of political revolution:...

    , insurrection, civil unrest, terrorism
    Terrorism
    Terrorism is the systematic use of terror, especially as a means of coercion. In the international community, however, terrorism has no universally agreed, legally binding, criminal law definition...

     or war
    War
    War is a state of organized, armed, and often prolonged conflict carried on between states, nations, or other parties typified by extreme aggression, social disruption, and usually high mortality. War should be understood as an actual, intentional and widespread armed conflict between political...

    ;
  • Governmental expropriation or confiscation of assets;
  • Governmental frustration or repudiation of contract
    Contract
    A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...

    s;
  • Wrongful calling of letters of credit
    Letter of credit
    A standard, commercial letter of credit is a document issued mostly by a financial institution, used primarily in trade finance, which usually provides an irrevocable payment undertaking....

     or similar on-demand guarantees;
  • Business Interruption; and
  • Inconvertibility of foreign currency
    Currency
    In economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...

     or the inability to repatriate funds.

As with any insurance, the precise scope of coverage is governed by the terms of the insurance policy.

The underwriting of political risk insurance is a dynamic, growing business. As globalisation increases, there are more corporations doing more business in more places around the world with each passing year. Some of the changes occurring in the business are high growth, new product offerings, and a greater role for private capital.

While political risk insurance policies are sometimes manuscript
Manuscript
A manuscript or handwrite is written information that has been manually created by someone or some people, such as a hand-written letter, as opposed to being printed or reproduced some other way...

ed for specific situations, the major political risk insurers have standard forms for the coverages that they issue. For "complex" or larger investments manuscripted policies are the norm and there may be several insurers providing cover in the form of a syndication, through co-insurance, or perhaps with the participation of a reinsurer on a facultative basis.

Providers of political risk insurance include public agencies and private insurance companies. With there being a wide range of options available, the use of a specialized broker is highly recommended.

Zurich North America is the leading global private provider of political risk and trade credit insurance.

External links

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