Political Risks

Every transaction with an unstable country is subject to a "political" risk which is hard to calculate, in addition to purely economic risks. A “political risk” includes cases where an official order in the purchaser or seller’s country does or could prevent, or somehow affect the proper fulfilment of the contract as agreed.

The market

In addition to state export credit insurance, the private insurance market also provides protection against political risks. As well as Lloyd's of London, international specialist insurers in Europe and overseas also offer insurance protection for “political risk” tailored to customers’ needs. Compared to the extensively standardised state coverage plans, there are, however, the following significant differences:

• Possibility to insure selected single risks
• Individual tailored coverage
• Risk-appropriate premium calculation
• Willingness to cover even unconventional risks
• Independence of national restrictions

The risks in export business

The risks in export business are divided into two areas:

Risks which arise during the manufacturing period (pre-shipment risk)

These include:

• War/civil commotion
• Import or export embargo
• Arbitrary termination of contract by a state purchaser
• Revocation of licence

Risks which arise following dispatch (post-shipment risk)

These include:

• War/civil commotion
• Bad debts as a result of default of payment
• Prohibition on conversion, transfer or payment
• Other arbitrary state actions
• Abuse of first demand bank guarantees

Risks to capital investments, shares and overseas investments (CEND risks)

These include:

• War/civil commotion
• Embargos
• Nationalisation and confiscation by authorities
• Expropriation of machinery and equipment
• Deprivation of title