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Companies with mobile assets located in developing markets overseas are often at risk to a number of politically motivated events. The effects of political risk events can range from negligible to severe, with consequences isolated to the loss of the value of the assets, or representing a more integral part of the company's business. Actions by the host government can hinder the employment of crucial non-fixed assets such as inventory or equipment through forcible seizure of valuable assets or restriction on their mobility, or by limiting access to property even though the corporation still retains ownership to the assets. These events can occur without warning and can originate from a variety of different sources and in a number of different forms.
Although governments of emerging markets seek to attract western corporations conducting business transactions locally, there are a number of circumstances that can arise which deprive a corporation of control with respect to movement of assets. Situations such as trade embargoes or trade sanctions against specific countries, or the closure of major transit routes can all hinder a corporation's ability to export equipment or goods. Political risks can also result from more selective forms of host government actions such as refusal to issue an export license where it was previously available, or cancellation or termination of a valid license that a corporation had already procured.
In addition, mobile assets are vulnerable to physical damage as a result of political violence including terrorism, rioting or sabotage. During the last few years, terrorist activity has been occurring with increasing frequency specifically targeted at the corporate sector rather than military installations or diplomatic locations. Corporations may be forced to abandon assets in the host country for an extended period of time as the result of an outbreak of war or other forms of armed conflict.
Political Risk insurance can minimize the risks presented by the unanticipated events identified above or others. The Political Risk Practice has been placing political risk coverage for decades, and has market-leading expertise in matching the most suitable insurance cover with our client's risk concerns.
For more detailed information on this particular issue, please see the Political Risks Briefing for Mobile Assets in printable format.
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