Political risk insurance: An innovative means of improving the security of investments abroad
Presented by SUEZ Energy International (SEI)
CONTEXT
SUEZ has been achieving excellent results in its international markets. Our activities in emerging countries however expose us to certain risks, particularly political risks like regulatory changes, expropriation or unfavourable restrictions imposed by foreign governments. SUEZ is actively managing these risks through a variety of techniques, such as contracting political risk insurance (PRI).
INNOVATION
Whereas the PRI market has for a long time been conservative, SUEZ has recently implemented a PRI product that is widely recognized as a groundbreaking first. This PRI for the first time ever moves boundaries in various key areas. Whereas traditionally a loss is indemnified based on the accounting book value of an investment, we have managed to insure the loss of its economic equity value. Standard policies require an arbitrary or discriminatory nature of the measure or a breach of (inter)national law as a test for insurability.
We have negotiated that these tests are not applicable for some key risks, Whereas standard policies require broad subrogation/assignment rights to the insurer, here these rights were replaced by mere contractual commitments by the insured. Finally, we have been able to insure government intervention in future contracts, yet to be concluded.
RESULTS
The implementation of this PRI is not just mitigating certain risks in this specific project but is above all a trendsetter for future PRI policies. The concepts developed in this context can be applied to a wide variety of project risks across all SUEZ business units hereby opening opportunities in countries where SUEZ would otherwise be less tempted to go.
