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3 Reasons for Political Risk Insurance

By November 26, 2018 No Comments

3 Reasons for Political Risk InsuranceIf you’re a multinational, exporter or otherwise doing business in emerging markets outside of Australian jurisdiction, political instability can weigh heavily on your chances of continued success. Even if you haven’t considered the angle, private insurance companies such as Niche Trade Credit (NTC) offer varying political risk insurance policies. Packages hedge against the financial losses incurred because of government actions such as protectionist measures, currency fluctuation, expropriation and more.

The risk of doing business in another country is a concern for potential investors as well. Securing outside investment will often depend on the availability of political risk insurance. Niche Trade Credit offers political risk insurance addressing these issues in a strategic way. Using the latest geopolitical analysis and statistical modeling, policies crafted offer the greatest value for your investment.

Protectionism

Nationalism is on the rise across the globe. Talk of tariffs, change in import/export requirements among other actions taken by foreign governments can mean the difference between a profitable arrangement and a bust. Your company might manufacture a product representing years and millions of dollars invested, only to find that a recently imposed tariff will eat up the margin.

Blue Scope Steel exports aluminum and steel to the United States. The recent 25% tariffs imposed by the Trump Administration were cause for concern but luckily, Australia was able to secure an exemption. News of the special arrangement saw a rise of 3% in Blue Scope’s share price. Political risk insurance takes the uncertainty out of the equation. Sooner or later, the odds turn against companies large and small. Aluminum and steel exports to the U.S. may be relatively low, but consider the risk across the spectrum of the 230 billion in Australian exports for 2017, and the case for hedging political risk becomes clear.

Currency Fluctuation

Natural and manipulated changes occur affecting the relative value of national currencies daily. Emerging markets are especially volatile. Today, the Australian dollar might be steady against the national currency where your interests are represented. Central bank interventions due to government policy and instability can rapidly invert an exchange rate. The ability to convert currencies for repatriation is also at risk in developing nations. NTC can tailor a package that’s right for these situations, shielding you from the complex risks that currency can represent.

Expropriation

Historically, expropriation was more narrowly defined. Today, it can take the form of less overt actions preventing a business from conducting itself internationally. Regulatory changes, tax reforms and other legal changes can also indirectly create circumstances that make operation untenable. The risk of direct seizure of assets, forced closures and transfers of ownership are no longer the only avenues for unscrupulous regimes to target successful companies and gain advantage.

Infrastructure developers and sovereign lenders may represent the highest form of political risk taking, especially for banks and financial institutions. Foreign government insolvency is a real possibility. The vast majority of sovereign nations are running under budget deficits. Australia is on relatively solid ground at -1.7% of GDP. The trend for higher debt is increasing across the board. Some economists are pointing to sovereign insolvency as a possible cause for the next global economic crisis. Government funded infrastructure often takes years to plan, execute and finalize. Competitively bidding on this moving target is risk enough. In the time it takes to complete a project, governments can change and circumstances can become unfavorable. Committing to a long-term infrastructure improvement without political risk insurance is an invitation for trouble.

Higher levels of risk come with more opportunity for profits. Underwriting the risk only makes good business sense and our specialists, at NTC, are ready to help. The circumstances between nations and types of business transacted call for a personalized approach. Working closely with our clients to develop the best possible insurance against political risk is why your next choice should be NTC.

*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.

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