Edited by Markus Krajewski and Rhea T. Hoffmann
Chapter 10: Investment guarantees and political risk insurance
Political risk can strongly discourage foreign investors. In order to improve the risk profile of their project, most investors mitigate political risk through preventive legal protection. A smaller number of investors choose to alleviate potential losses through investment guarantees and political risk insurance, using such schemes to complement rather than to substitute preventive legal protection. The first part of the chapter explores the particular nature of political risk and the consequent benefits and difficulties involved in the allocation of guarantees and subscription of political risk insurance. The second is dedicated to the presentation of the investment guarantee and political risk insurance market, in particular, the public and private political risk insurance providers. The third, finally, focuses on the scope of investment guarantees, as exemplified by the restrictions introduced by the Multilateral Investment Guarantee Agency in relation to coverage and compensation for expropriation.
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