The latest SCOR technical newsletter provides an introduction to this highly specialized class of (re)insurance that helps facilitate global trade, promotes cross-border investment and supports the development of infrastructure projects for societies around the world.
Imagine being an owner or executive of a business, for example one that specializes in building and operating solar power plants. An opportunity comes your way that would enable you to expand your business into another country, an emerging market, where the government wants to jointly invest in the operation with you. While this presents an interesting opening for your business, you are conscious of the risks involved in expanding outside of your home country. These include political risks, i.e. decisions made by the government of the host country, which could negatively affect your business there and lead to financial losses for your company. For example, a situation could arise whereby, at some point in the venture, the government of the host country fully seizes (i.e. nationalizes) ownership of the company that you have jointly established. Such an act is called “nationalization” or “expropriation”, and as an example it happened to the Argentinian subsidiary of the Spanish Energy Company “Repsol” back in April 2012, under the country’s Cristina de Kirchner administration.
This newsletter aims to provide a brief introduction to a class of (re)insurance that covers both political risks like the one described above, and purely commercial risks such as non-payment by a private counterparty, not necessarily related to political circumstances. This class of highly specialized cover is called Single and Political Risk (re)insurance. Its purpose is to facilitate global trade – including cross-border investment in low- and middle-income countries – in order to support the development of infrastructure projects for societies around the world, and hence to further advance the development of their respective economies.