Political Risk Insurance – loans (“PRI for Lenders”)
In some situations, loans are much more vulnerable to political risks than credit risks. Examples include strong borrowers whose core business and assets are located in high-risk countries, or tightly secured loans in which the security is located in high-risk countries.
Loans can be covered against political risks under Political Risk Insurance for Lenders policies (“PRI Lenders”). PRI Lenders are “named perils policies”, which mean that, in order to be indemnified, the loss (being a default by the borrower) must be directly caused by the occurrence of specified political events (perils).
These perils include primarily:
- Operating license cancellation
- Forced abandonment
- Export / import embargoes
- Physical damages caused by war, civil war or political violence
- Currency inconvertibility and exchange-transfer delays
Additional perils can be covered depending on the specifics of the transaction. Negotiating PRI Lenders policy wording requires a thorough analysis of the risk. Rather than adding perils that may have little relevance to the transaction, the focus should be on correctly defining the key perils first.