Political Risk Insurance: Opportunities and Pitfalls

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Political Risk Insurance Opportunities and
Pitfalls

• LAW OFFICES
• robert wray PLLC
• 1150 connecticut avenue, nw ? suite 350
• washington, dc 20036
• main 202.349.5000 ? fax [phone]

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Political Risk Insurance Basic Coverages

• Currency Inconvertibility
• Expropriation
• Breach of Contract/Disputes
• Political Violence

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The Political Risk Insurance Marketplace

• Public sector
• Deterrence
• Innovation
• Private sector
• Absence of public policy constraints
• Speed
• Commercial opportunism

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Currency Inconvertibility

• Convertibility and transfer of debt service,
  dividends, etc.
• Active or passive blockage
• Not devaluation coverage prevailing rate

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Currency Inconvertibility Pitfalls

• Waiting period
• Rate at which compensation for blocked local
  currency is calculated

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Expropriation (CEN)

• Various wordings, same general intent
• Loss of fundamental rights (including creditors
  rights)
• Outright and creeping expropriation
• Exclusion for bona fide government acts
• Exclusion for government commercial acts

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Expropriation Pitfalls

• Wording ambiguity
• Exclusions
• Total vs. partial loss coverage
• Pledge of shares

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Breach of Contract/Disputes

• Plugs government commercial obligation exclusion
  hole
• Specific government obligations
• Failure to honor arbitration award

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Breach of Contract/Disputes Pitfalls

• No better than the underlying agreement with the
  government
• What you can recover
• The arbitral forum
• Typically no faster recovery than the arbitral
  forum allows
• Inability to obtain a timely (or any) award

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Political Violence

• Broad spectrum of events from war to civil
  commotion, including terrorism
• Causing a loss
• For loans default
• For equity damage or inability to operate
• Book/replacement value compensation for damage
• Lost income or investment book value for
  inability to operate

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Political Violence Pitfalls

• Disputed causation
• Damage to what?
• Loss without damage

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Some General Issues

• Waiting periods
• Percentage of coverage
• Term
• Exclusions and limitations
• Claims arbitration
• Creditworthiness

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Pitfalls and Opportunities

• Choosing the right insurer for the transaction
  and the buyer (price isnt everything)
• Negotiating the terms and wording
• Breaking new ground
• Managing the claims (and incipient claims)
  process

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