Businesses face heightened financial and political risks as they develop their presence in overseas and emerging markets. The risks today are complicated as we find ourselves in a rapidly evolving global economy where the actions of government increasingly threaten the activities of Canadian businesses. To compound this the recent global economic crisis has placed governments all over the world in an increased state of fiscal stress when often decisions are made that are neither rational nor predictable. For this reason, no longer is it just emerging markets that give rise to the risks covered by political risk insurance.

Millennium can help companies manage and mitigate these risks in areas ranging from project and trade coverage to insurance against kidnap, expropriation and politically motivated violence. The benefits of effective Political Risk Insurance include developing a more secure and stable environment for investments into foreign markets thus enhancing potential access to finance.

There is a healthy private sector insurance market that can work with Export Development Canada (EDC) or effect coverage in markets where EDC cannot or will not insure.

Political Risks

Banks and multinational businesses face a wide range of risks when conducting business overseas. Some of these risks can be managed or mitigated by exercising due diligence.  However, other risks are difficult for investors or lenders to predict or quantify. These include some commercial and non-commercial - or political - risks. Political Risk Insurance (PRI) enables businesses to mitigate and manage risks arising from the adverse actions - or inactions - of governments.

These are the risks that are outside the control of the exporter, investor, contractor and the buyer unless the buyer is a Government:

• Expropriation, nationalization or discriminatory regulatory practices amounting to nationalization.

• War, revolution or civil strife preventing access to the asset

• Inconvertibility of or inability to transfer dividends or payments

• Cancellation or non-renewal of import or export licenses

• Embargo or other restrictions on import and export that were not in place prior to the investment or contract

• Confiscation, seizure or inability to re-export equipment or inventory

• Non-payment by a Sovereign buyer

• Non honouring of a Sovereign guarantee

• Cancellation of a contract by a Sovereign buyer

• Political events frustrating a contract or preventing payment under Documentary Credits or resulting in the rightful call of a bond or guarantee

• Kidnap, ransom or extortion of personnel or their families

Political Risk Matrix

Risks

1

2

3

4

5

6

7

8

9

10

11

Project Investor

X

X

X

X

X

X

Manufacturing Investors

X

X

X

X

X

X

X

Contractors & Service Providers

X

X

X

X

X

X

X

X

X

Exporters

X

X

X

X

X

X

X

X

 

Confiscation, Expropriation, Nationalisation and Deprivation ('CEND')

 CEND provides protection against total or partial loss of investments resulting from host government actions. This includes expropriation, forced sale, deprivation of ownership rights or other acts having similar effect. Buyers are typically extractive industries and banks providing project finance, but also include manufacturers with overseas subsidiaries.

Political Violence

Political Violence insurance compensates policyholders for damage to or loss of tangible property, and lenders for default in debt service resulting from physical damage losses caused by politically motivated events of war, civil war, revolution, insurrection, sabotage, terrorism and civil strife. Aspen insures against both types of losses. Coverage is usually available for up to one year or, in the case of combined political risk and political violence, up to five years.

Political violence coverage provides compensation when politically motivated violence damages physical assets or interrupts operations and, as a consequence, is usually calculated on a loss of income compensation for business interruption. For loans, compensation is based on the amount in default as a direct result of political violence.

Currency Inconvertibility/Non-transfer ('CI')

CI provides protection against the inability to convert dividends, profits, fees, investment and loans from local currency to hard currency and its subsequent transfer out of the host country.

Kidnap and Ransom ('K&R')

K&R Insurance is designed to protect individuals and corporations operating in high-risk areas worldwide. K&R policies are indemnity policies - they reimburse a loss incurred by the insured. These policies typically insure against:

• Kidnap, hijack and resultant bodily injury

• Threats to kill, injure or abduct or to damage property or products

• Extortion - including threats to kill, injure or abduct or to damage property or products

• Malicious and illegal detention

We would be happy to help you.  Please feel free to contact us in one of our Ontario offices (Ottawa, Toronto) our Québec (Montréal) office or in our British Columbia (Vancouver) office.