Political Risk Insurance

Abstract

Although political risks might seem isolated and rare, their implications are quite alive and profound in the everyday social and economic activities of a nation. Assessing political risk goes beyond checking a country's sovereign rating and having good relations with incumbent political parties. Political risks also must be distinguished from security risks. Political risk insurance wrapping to place debt in the capital markets, and securitization of some of these structures, represents an important market innovation to help reduce funding costs and diversify funding sources. Being able to understand and negotiate appropriate policy language, as well as putting in place credible payment mechanisms, is the main challenge for a successful wrapping.