RISK MITIGATION: What are Updates & Proposals on Risk Mitigation Products?

Product Name Political Risk Insurance
Link to Product Website
Provider Name OPIC (Overseas Private Investment Corporation) - USA
Product Definition Investing in emerging markets can be unpredictable, even for the most sophisticated investors. While developing markets can offer great opportunity, they can also present a variety of political risks beyond an investor’s control. Among them:


- War, civil strife, coups and other acts of politically-motivated violence including terrorism
- Expropriation, including abrogation, repudiation and/or impairment of contract and other improper host government interference
- Restrictions on the conversion and transfer of local-currency earnings

OPIC’s insurance – combined with its financing options -- allows U.S. businesses to take advantage of commercially attractive opportunities in emerging markets, mitigating risk and helping them compete in a global marketplace. OPIC insurance provides innovative, comprehensive, and cost-effective risk-mitigation products to cover losses to tangible assets, investment value, and earnings that result from political perils.

Political risk insurance is available to U.S. investors, lenders, contractors, exporters, and NGOs for investments in 150 developing countries, including high-risk countries such as the Democratic Republic of Congo, Iraq, Afghanistan, and Pakistan. Coverage is offered for small and large investments that provide positive developmental benefits.

Types of Coverage: OPIC offers several types of political risk coverage:

1. Currency inconvertibility
2. Expropriation and other forms of unlawful government interference
3. Regulatory risk
4. Political violence
5. Specialty products (including reinsurance, institutional loans, leasing, etc.)

Extent of Coverage:

Insurance policies for equity coverage are available for up to 20-year terms. For loans, leases and transactions covered by the contractors and exporters insurance product, the term is generally equal to the duration of the underlying contract or agreement.

OPIC can insure up to 90 percent of an eligible investment. OPIC’s statute generally requires that the investor bear at least 10 percent of the risk of loss. However, loans and capital leases from financial institutions to unrelated third parties may be insured for 100 percent of principal and interest.

For equity investments, OPIC typically issues insurance commitments equal to 270 percent of the initial investment — 90 percent representing the original investment and 180 percent to cover future earnings. Coverage amounts may be limited for investments in countries where OPIC has a high portfolio concentration.

Examples of Advocacy:

OPIC provides advocacy services for its client companies on a case-by-case basis. The following are a few examples of this client service:

1. OPIC undertook various efforts to maintain a major broadcaster’s broadcasting rights, after it was informed by the Minister of the Press that the broadcaster would no longer be able to use a certain channel so that it could be used for government news. Subsequent to OPIC sending letters and having one of its executives meet with ministers and deputy ministers, the company’s basic license was renewed and the government agreed to renew the broadcaster’s other existing licenses.

2. OPIC engaged in multiple discussions with the associated city government in an effort to enforce an arbitral award against the local joint venture partner for a fast-food vendor, after the U.S. investor obtained an international arbitral award for wrongful seizure of the joint venture, its assets and income. The investor received compensation from city officials enabling them to open a new location of the fast-food restaurant.

3. OPIC sent a letter to a provincial tax ministry on behalf of a small oil and gas investor, after the local tax ministry assessed property and profits taxes, interest, fines and penalties following an audit. The local arbitration court ruled in the investor’s favor, but the tax ministry prevailed in a subsequent appeal. OPIC’s letter urged the tax ministry to defer taking any enforcement actions until the investor had the opportunity to have its tax liability fully adjudicated by the court system in the country.

4. Following the refusal of a host government to recognize an international arbitral award in regards to a dispute that involved a U.S. investor and a local firm, OPIC sent a letter to the host government. OPIC reminded the host government about its interest in attracting foreign investment, the importance of respecting the rule of law, and its obligation to honor the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Subsequently, the host government recognized the international arbitral award, and the U.S. investor was very pleased with the support and assistance that OPIC provided regarding this matter.

Product Type Political Risk Insurance
Defined Risks Covered n.a. More on Risks Covered
Eligible Form of Investments All
Eligible Currency of Underlying Investment Covered by this Product Both local and foreign currency
Eligible Countries & Regions All
More on Eligible Countries
Eligible Applicants MIXED (PUBLIC-PRIVATE): All
PRIVATE: International Corporates
PRIVATE: International Banks
PRIVATE: Companies headquartered in Risk Mitigation Provider Home Country
PRIVATE: Minimum Product or Service Content Requirement from Risk Mitigation Provider Home Country
Eligible Sector No Specific Sector
Maximum Tenor 15+ to 20 years
Max. Absolute Amount (USD) 100+ to 250 MM
Max. % of Project Costs Covered 75+% to 100%
Max. % of Export Content Covered Max./under 50%
Fees Market-based
Election of Coverage

Coverage elections for most equity and shareholder debt investments are based on a coverage ceiling and an active amount. The coverage ceiling represents the maximum insurance available for the insured investment and future earnings under an insurance contract. Premiums are calculated based on the active amount, which represents the insurance actually in force during any contract period.

The active amount under all coverages must equal at least the book value of the insured investment unless a lower coverage ceiling is elected. There is no charge for the difference between the coverage ceiling and the active amount.

For most other investment types, premiums are computed based on a maximum insured amount (MIA), a current insured amount (CIA) and a standby amount. The MIA represents the maximum insurance available for the insured investment under an insurance contract. The CIA represents the insurance actually in force during any contract period. The difference between the MIA and CIA is the standby amount. Separate premiums are charged for CIA and standby amounts. For loans, premiums are charged on the “covered amount,” the amount of disbursed principal plus accrued interest less principal paid to date, and a standby fee is charged for undisbursed principal.

Indicative Rates:

In certain cases, OPIC Insurance rates may fall outside of the ranges shown in the table below, depending on the particular risk profile of the project. It is also possible that the ranges shown also could be adjusted and affect rates for potential insurance contracts. However, once an insurance contract is executed, the rates in that contract are fixed for the contract’s term.

OPIC insurance contracts generally require that premiums be paid annually in advance.

OPIC insurance may not be available for certain coverages, or there may be limitations for underwriting or other reasons. Investors should consult the country list page regarding availability in particular countries.

Coverage: Inconvertibility, Rate: $0.18-$0.42 (Active/Current), $0.20 (Standby)
Coverage: Expropriation, Rate: $0.28-$0.60 (Active/Current), $0.20 (Standby)
Political Violence*: Business Income, Rate: $0.21-$0.53 (Active/Current), $0.20 (Standby)
Political Violence*: Assets, Rate: $0.21-$0.53 (Active/Current), $0.20 (Standby)

* Discounted rates may be available for small businesses and/or a combination of coverages.
** Investors should contact OPIC directly for information on pricing for Non-Honoring of a Sovereign Guaranty and Oil and Gas coverages.
More on Fees

Other Conditions Sovereign Counterguarantee: No
Anti-Corruption and Governance Standards: Yes link
Environmental standards: Yes link
Social standards (incl. Human Rights Standards; Labor Rights Standards): Yes link
Others:
Source(s) n.a.
For more information, contact
OPIC (Overseas Private Investment Corporation)
Email: applyins@opic.gov
Phone: 877-654-3611
Attachments n.a.
Additional Links www.opic.gov/what-we-offer/political-risk-insurance/apply
www.opic.gov/what-we-offer/political-risk-insurance/process
www.opic.gov/what-we-offer/political-risk-insurance/brokers
Deals Apache Corp (Egypt), Belstar Corp. (Ghana), Seaboard Corp. (Haiti)

Provider Name OPIC (Overseas Private Investment Corporation) - USA
Institution Type PUBLIC: Multilateral Development Bank
Ownership Government of the United States of America
Head Office 1100 New York Avenue, NW Washington, D.C. 20527
Provider Home Country United States
Rating n.a.
Main Risk Mitigation Products n.a.
Attachments n.a.
Additional Links www.opic.gov/what-we-offer/overview
www.opic.gov/opic-action/all-project-descriptions
www.opic.gov/doing-business-us/OPIC-policies
Entered On: 07/11/2007 at 08:53 AM
Updated On: 05/08/2013 at 08:30 AM