Insuring political risk in the emerging markets

Author: | Published: 1 Jan 2000

Noam Ayali of Chadbourne & Parke, Washington, reviews Opic's political risk insurance product, which extends coverage to project bonds and bondholders

The Overseas Private Investment Corporation has introduced a new insurance policy aimed at protecting bondholders in capital markets financings from losses due to political risk. Other multilateral and private political risk insurers are expected to come to market shortly with similar products.

Political risk, or the risk that a commercial project will be adversely affected by political actions or circumstances over which an investor has little or no control, is a well-recognized risk in international project finance. To mitigate that risk, project developers and commercial bank lenders often seek political risk insurance policies from multilateral or bilateral agencies such as the Multilateral Investment Guarantee Agency, the Overseas Private Investment Corporation (Opic) or the US Export-Import Bank, or from private market players such as American International Group, Zurich US or Lloyds, to name a few....