Transferring the Risk of Political Impacts

Key Takeaways

• PRI Core Function: Political risk insurance protects companies from non-commercial losses tied to foreign-government actions, instability, political violence, and currency restrictions.
• Main Coverages: PRI commonly covers expropriation and breach of contract, political violence and civil disturbance, and currency inconvertibility or transfer restrictions.
• Provider Landscape: Coverage is offered by private insurers, multilateral development institutions, and government-backed ECAs, often working together through co-insurance or reinsurance.
• Strategic Importance: PRI enables multinational firms to operate in high-risk markets, stabilize foreign investments, access financing, and maintain continuity during politically driven crises.

Deep Dive

Political events beyond a company’s control—such as sudden regime changes, civil unrest, or expropriation—can pose serious financial threats, impacting revenues, assets, operations, and contractual obligations. Political risk insurance exists to shield businesses from exactly these uncertainties. By transferring the potential economic fallout to an insurer, companies safeguard themselves against the full brunt of a crisis, preserving financial stability even when unforeseeable disruptions occur.

Political risk insurance protects investments against non-commercial losses driven by government actions or instability—most commonly: expropriation/nationalization and government-contract risks, political violence, and currency inconvertibility or transfer restrictions. Multilateral and government providers like MIGA and the U.S. DFC describe these as their core coverages:

• Government Action Against Assets and Contracts (Expropriation/Nationalization and Breach of Contract): Covers direct takings (e.g., nationalization) and “creeping” or partial expropriation that deprives an investor of ownership, control, or essential rights—even without a formal seizure. Typical recoverable losses include the insured share of asset value or investment value, depending on policy form. For contract risks with public counterparties, cover can extend to abrogation/repudiation, forced renegotiation, and arbitral award default or denial of justice—paying if a government fails to honor a final award or prevents effective recourse. Example: a power-purchase concession cancelled by a ministry; the investor wins arbitration but the state refuses to pay—Breach-of-Contract/AAD coverage responds up to policy limits. 

• Political Violence and Civil Disturbance: Protects against physical damage and business interruption caused by war, civil war, revolution, insurrection, coups d’état, terrorism, sabotage, riots and civil commotion—usually where events are politically motivated. Many policies (e.g., MIGA’s) reimburse temporary business interruption costs (continuing expenses, extraordinary restart costs, and lost income for a defined period) and may also address total/prolonged interruption when operations are impossible. Example: a distribution hub destroyed during nationwide riots; coverage can pay to repair/replace assets and to fund restart and lost-income costs within the covered window. Note: standard property policies often exclude war/terror/SRCC perils, so dedicated political-violence cover is commonly required. 

• Currency Inconvertibility and Transfer Restrictions: Responds when lawfully earned local-currency revenues (dividends, principal/interest, fees) cannot be converted into a hard currency or transferred out of the host country due to government actions (e.g., exchange controls, moratoria). Policies typically indemnify missed remittances or debt service blocked by restrictions; they do not cover pure devaluation/exchange-rate movements. Example: a subsidiary remains profitable but a new decree bars FX conversion and outbound transfers, trapping cash in-country—CI/TR coverage reimburses the blocked payments according to the policy formula. 

Who Provides Political Risk Insurance?

Political risk insurance (PRI) is offered by three main provider groups: (1) private insurers in the commercial market, (2) multilateral development institutions, and (3) government-backed export credit agencies (ECAs). Each serves a slightly different purpose and often partners with the others on co-insurance or reinsurance to increase capacity and reach:

• Private Insurers: The private PRI market is concentrated in hubs like the UK, U.S. and Bermuda and includes major carriers and Lloyd’s syndicates—examples often cited are Zurich, AIG, Chubb and Lloyd’s market participants. Policies typically cover perils such as expropriation, currency inconvertibility/transfer restrictions and political violence, and are frequently placed through brokers into the Lloyd’s/London market. For instance, AIG advertises multi-year worldwide PRI capacity for these core perils, while Lloyd’s materials describe cover for losses from government actions and political violence. 
• Multilateral Agencies: Development finance institutions provide PRI (often called “guarantees”) to catalyze investment—especially in emerging and frontier markets—and can take long tenors and higher-risk country exposures. The World Bank Group’s MIGA offers PRI for investors and lenders across developing member countries; Islamic Development Bank Group’s ICIEC provides PRI for equity and debt in its member states; and Africa’s ATI (now ATIDI) began as a dedicated political risk insurer for the continent. These multilaterals also partner with governments and private insurers via co-/reinsurance to expand capacity (e.g., MIGA–NEXI cooperation; DFC reinsuring licensed insurers). 
• Export Credit Agencies (ECAs): ECAs are government-backed insurers/guarantors that protect exporters and, in many countries, outbound investors. Examples: the U.S. EXIM’s export credit insurance covers non-payment due to commercial and political risks; the UK’s UKEF offers Overseas Investment Insurance (its political risk product), typically stepping in when private capacity isn’t available; Japan’s NEXI, a publicly owned insurer, covers trade and investment losses from political risks and other hazards; France’s Bpifrance Assurance Export likewise offers investment insurance to “secure my investments abroad” against political risks. 

Importance for Global Brands 

Political risk insurance (PRI) gives multinational firms a way to operate and invest in volatile markets while capping non-commercial downside—helping stabilize projects, unlock financing, and keep strategic growth on track. Multilateral and policy studies consistently. For example, a multinational energy company operating in a politically unstable country buys PRI covering expropriation and war/civil disturbance. If conflict damages facilities or the state seizes assets, the policy responds within limits—preserving capital and enabling recovery in a sector where political risks are pronounced. PRI allows companies to:

• Enter High-Risk Markets with Downside Protection: PRI backstops catastrophic, government-linked shocks (e.g., expropriation, currency blocks, war/civil disturbance), allowing brands to launch or expand in jurisdictions that would otherwise be uninsurable or outside internal risk appetite. This protection is explicitly designed to cover total business interruption and politically motivated violence, as well as blocks on converting or remitting cash—letting firms pursue market access while ring-fencing tail risks.

• Make Foreign Investment more Bankable and Attractive to Shareholders. By transferring specific sovereign and political risks, PRI can “crowd in” capital—improving lenders’ and investors’ comfort, lowering perceived risk, and in some cases improving the effective credit profile of project debt. Recent assessments show PRI attracts investment into higher-risk countries and can help secure affordable debt; UNCTAD likewise highlights PRI’s role in facilitating FDI to vulnerable economies. For public companies, that de-risking supports a more predictable investment thesis. 

• Protect Continuity—and, by Extension, Reputation—During Crises. When unrest or conflict disrupts operations, PRI can reimburse physical damage and covered interruption, funding repair/restart and helping brands sustain service to customers and communities. Maintaining continuity is a core pillar of resilience, and research on corporate reputation shows that reliable performance through shocks supports stakeholder trust and valuation—outcomes PRI is intended to enable in politically driven crises. 

PRI is Designed for Foreign Operations

PRI primarily protects companies investing or operating outside their home country against losses caused by foreign-government actions or political instability. Providers describe PRI as a tool for cross-border investment—especially into developing or higher-risk markets—not as a domestic insurance product:

• It Targets Cross-Border, Foreign-Government Perils: PRI is built for risks that arise in a host country—for example, a state’s adverse actions or inaction that harm an investor’s project. Multilateral and government providers (e.g., the World Bank Group’s MIGA and the U.S. DFC) explicitly position PRI to stabilize investments into other countries, helping investors access finance while managing sovereign/political exposure.

• What Those Foreign Risks Look Like in Practice. Policies typically respond to: expropriation/nationalization (direct or “creeping”) that deprives investors of ownership or control; breach of contract by a government counterparty (e.g., cancelled concessions or non-payment on a PPA); political violence (war, civil unrest, terrorism) causing damage or business interruption; and currency inconvertibility/transfer restrictions that trap cash in-country—explicitly excluding mere currency depreciation. These are defined, productized coverages by major PRI providers. 

• Why it’s Rarely Relevant for Purely Domestic (e.g., U.S.) Operations: PRI addresses risks that domestic legal and financial systems seldom pose—like sudden nationalization or capital-control blocks on moving money out of the country. That’s why public agencies market PRI for overseas investments (e.g., DFC insures U.S. investors abroad; the U.K.’s OII protects U.K. investors investing overseas; Canada’s EDC offers political-risk coverage for Canadian direct investments abroad). In short: if your exposure is domestic, these foreign-sovereign perils generally don’t apply to the same degree. 

In the U.S., many “political risk–like” events are addressed by conventional lines of insurance—especially commercial property, business interruption, civil-authority extensions, and standalone terrorism cover backed by TRIA. By contrast, foreign-sovereign perils like currency inconvertibility or expropriation fall outside typical domestic policies and are the domain of PRI.

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• Unrest, Riots, Vandalism → Commercial Property + Business Interruption (Incl. Civil Authority): Standard commercial property policies generally cover physical damage from riot, civil commotion, and vandalism, and BI coverage can reimburse lost income/extra expense when operations are disrupted—often including a civil authority extension when access is restricted by government order (subject to policy triggers and limits). Regulators and industry guides note these perils are typically included in U.S. property forms. Civil-authority provisions can extend BI/extra expense when access is prohibited, though some forms still require direct physical loss—so wording matters. ‍‍
• ‍Terrorism → Terrorism Insurance (TRIA-Backed): Terrorism risk in the U.S. is usually insured via standalone (or endorsed) terrorism coverage that participates in the Terrorism Risk Insurance Program (TRIA)—a federal backstop that shares losses from certified acts of terrorism between the government and private insurers. Treasury administers the program and reports on its effectiveness and market take-up. 
• ‍Regulatory/Political Actions and Currency Issues → Generally Not Insurable Domestically: Changes in law, regulatory shifts, or government acts are commonly carved out by governmental action and ordinance or law exclusions in property policies, meaning firms manage these exposures through compliance, legal strategy, advocacy, or contract structuring—not insurance. And the currency inconvertibility/transfer restriction peril that PRI covers abroad (i.e., being unable to convert or move funds due to host-government controls) doesn’t apply within the U.S. monetary system; it’s specifically a foreign-exchange control risk. 

Why Some Domestic Risks are Hard to Insure

In the U.S., even when instability or government action affects operations (e.g., sudden local bans, regulatory shifts, or civil unrest), insurers often decline broad “political risk” cover for domestic exposures. Instead, they channel insurable pieces into narrowly defined policies and expect companies to manage the rest operationally. For U.S. domestic operations, companies typically lean on targeted insurance (property/BI, terrorism, etc.) plus risk management, lobbying, legal compliance, and security—not PRI, which is designed for foreign-sovereign hazards:

• Too Broad, Correlated, or Unpredictable to Price: Events like sweeping policy changes or community-wide unrest can trigger simultaneous losses across many policyholders, creating unbounded, highly correlated claims that are hard to model and capitalize against. Triggers are diffuse (Who ordered what? When did it start? What constitutes “political”?) and durations uncertain. Standard U.S. wordings therefore carve out open-ended exposures via exclusions such as governmental action/ordinance-or-law and war/insurrection, while any available civil-authority or riot/civil-commotion coverage is tightly framed (often requiring physical damage, short time sub-limits, and defined radii).

• Overlap and Conflict with Other Policies: Much of the domestic loss picture already sits—by design—inside existing lines: property and business interruption (including civil authority), terrorism (TRIA-backed), general liability, cyber, D&O/E&O, and workers’ comp. A broad “domestic political risk” form would double-count perils, create allocation disputes, and blur triggers (e.g., is a curfew a BI trigger, a governmental action exclusion, or both?). Insurers therefore avoid catch-all covers and, where needed, address gaps with narrow endorsements rather than a new, overlapping policy.

• Moral Hazard and Incentive Problems: Insuring open-ended losses from regulation or government orders can dull incentives to invest in compliance, security, contingency planning, and stakeholder engagement; it also invites adverse selection (only the most exposed buyers seek cover). To keep incentives aligned, insurers push insureds toward demonstrable risk controls—lobbying and policy monitoring, legal compliance programs, physical security, and continuity plans—and reserve indemnity for clearly defined, accidental perils.

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