POLITICAL RISK INSURANCE

Let’s consider the below news that appeared in 2016:

QUOTE

An arbitration tribunal in Singapore has ruled in favour of the GMR group of companies on its dispute with the Maldives government on the airport project in that country.

GMR, the tribunal has decided, is entitled to payment of damages for the termination of its contract in Maldives for the airport. This will include all the money it had borrowed from Axis Bank for the project. The payment is to be completed by the third quarter of this calendar year. A subsidiary of GMR had signed an agreement with the government of that country and Maldives Airport Company Ltd for the modernization and operation of the airport in Male, the capital city, in 2010. The GMR company had won the right to build and operate the Ibrahim Nasir International Airport for 25 years, extendable by another 10 years. GMR had planned to invest a little over $500 million in the project, which included a debt component of $358 million.

UNQUOTE

The government of Maldives honored the foreign arbitral award.

However, there are many instances when host Governments refuse to honor foreign arbitral awards.

Can such a refusal to honor the arbitral award be covered under an Insurance Policy?

The answer is YES.

The policy is called “Political Risk Insurance”. 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 in developing countries and unlock better access to finance.

Political Risk Insurance covers many risks like Currency Inconvertibility, Expropriation, War, and Political Violence. One of the important covers is “Arbitration Award Default”. It covers the risk of non-payment of an arbitration award obtained by a foreign investor against a host Government or a state-owned enterprise, in accordance with the terms and conditions of a project agreement.

An excellent cover to buy when investors are investing and implementing projects in Countries where the Political Risk is very high.

Written By: Atmaram Cheruvu