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Political Risk Insurance: Opportunities and Pitfalls

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 202.293.7877. Political Risk Insurance: Basic Coverages. Currency Inconvertibility Expropriation

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Political Risk Insurance: Opportunities and Pitfalls

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  1. Political Risk Insurance: Opportunities and Pitfalls LAW OFFICES robert wrayPLLC 1150 connecticut avenue, nw ● suite 350 washington, dc 20036 main 202.349.5000 ● fax 202.293.7877

  2. Political Risk Insurance: Basic Coverages • Currency Inconvertibility • Expropriation • Breach of Contract/Disputes • Political Violence robert wrayPLLC

  3. The Political Risk Insurance Marketplace • Public sector • Deterrence • Innovation • Private sector • Absence of public policy constraints • Speed • Commercial opportunism robert wrayPLLC

  4. Currency Inconvertibility • Convertibility and transfer of debt service, dividends, etc. • Active or passive blockage • Not devaluation coverage – prevailing rate robert wrayPLLC

  5. Currency Inconvertibility: Pitfalls • Waiting period • Rate at which compensation for blocked local currency is calculated robert wrayPLLC

  6. Expropriation (“CEN”) • Various wordings, same general intent • Loss of fundamental rights (including creditor’s rights) • Outright and “creeping” expropriation • Exclusion for bona fide government acts • Exclusion for government commercial acts robert wrayPLLC

  7. Expropriation: Pitfalls • Wording ambiguity • Exclusions • Total vs. partial loss coverage • Pledge of shares robert wrayPLLC

  8. Breach of Contract/Disputes • Plugs government commercial obligation exclusion hole • Specific government obligations • Failure to honor arbitration award robert wrayPLLC

  9. 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 robert wrayPLLC

  10. 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 robert wrayPLLC

  11. Political Violence: Pitfalls • Disputed causation • Damage to what? • Loss without damage robert wrayPLLC

  12. Some General Issues • Waiting periods • Percentage of coverage • Term • Exclusions and limitations • Claims arbitration • Creditworthiness robert wrayPLLC

  13. Pitfalls and Opportunities • Choosing the right insurer for the transaction and the buyer (price isn’t everything) • Negotiating the terms and wording • Breaking new ground • Managing the claims (and incipient claims) process robert wrayPLLC

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