Political Risk Insurance and Trade Credit Insurance

There are two main kinds of Trade Credit Insurance:

1) Whole turnover Trade Credit Insurance policies, which cover in one policy all the accounts receivable of the insured, provided they have a risk limit approved by the insurance company.

2) Single Risk Trade Credit Insurance, which covers just one project or contract, usually of high value, since not all contracts can be covered by this insurance.

For more information on TRADE CREDIT INSURANCE, please click HERE

Both policies can cover commercial and/or political risk insurance.

POLITICAL RISK INSURANCE, POLITICAL VIOLENCE AND TERRORISM INSURANCE

Political risk insurance or single risk is also called credit insurance, and it covers the commercial and/or political risk in a project or activity at an international level and can offer protection against credit risk depending on the type of contract.

It is a concept linked to the country’s risk and associated with the protection of companies that assume the non-payment risk of state owned or private companies when carrying out an export contract in the country where it is covered.

What is Political Risk Insurance?

Political risk is linked to the country’s risk and it protects against a change in the regulatory framework or a political change in the country that could lead to a non-payment or any kind of contract breach, or a loss of investment, assets or income as well as risks such as war, turmoil, political riots or terrorism.

Apart from those, there are some classic causes of political risk to mitigate with insurance such as confiscation, seizure, expropriation, nationalization, boycott, inconvertibility of currency for the profits of projects and possible refunds of some financial operations linked to investments.

This type of insurance typically covers this kind of risk for investors, exporters, contractors, banks, funding companies and other companies that assume the non- payment or contract frustration risk when carrying out an export contract, an investment or a loan in the country where it is covered.

How to cover Political Risk Insurance:

There are two main types of political risk insurance according to the insurance company which mitigates the risk:

The main choices regarding coverage are:

1) Export Credit Agencies or ECAs: these cover the risk on behalf of the exporter or the investor’s state, and there are different ECAs according to their nationalities. In Spain, the official export credit agency is Cesce ( Compañía Española de Seguro de Crédito a la Exportación ). In France it is Coface, in the Netherlands it is Atradius, in UK it is EGCD and in Germany it is Euler Hermes.

2) Private Insurance: this insurance is not on behalf of any state, but private. The underwriting criteria are according to technical and professionals standards, outside of political reasons.

With all the different choices available in the market and the complexity of this kind of risk, you need the guidance of an experienced and professional insurance broker to advise you, to create a risk map according to the different export or investment countries and the specific insurance needs of your company.

FOREIGN DIRECT INVESTMENT INSURANCE (FDI), POLITICAL VIOLENCE INSURANCE

The use of this insurance mitigates the political risk of:

– Non-transfer of dividends or currency inconvertibility

– Confiscation, expropriation, nationalization and deprivation of assets

– Political violence covering actions of war, civil war, terrorism or riots

Coverage associated to political violence is used to protect assets in high political risk countries. It can also be combined with some coverage regarding loss of earnings to protect the activity or project.

Insured Risks

This mainly includes the coverage of equity in a foreign investment in the form of a subsidiary or joint venture. It can cover equipment, internal fees, repayment of a loan with a bank or finance company or repatriation of dividends.

POLITICAL RISK INSURANCE COVERS :

+ Pre-Shipment Risk

In international Infrastructure Projects or Import Export Business includes the cover of the pre-shipment contract risk .

+ Post- Shipment Risk

After shipment and invoicing, the typical political risk or credit risk involved is a non payment risk. With different means of payment, we can offer the best political risk insurance cover for this risk .

+ Unfair Calling of Bonds.

We can offer this cover along with the other two or just as a single cover . Also global unfair calling of bonds policies available in the market.