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Political Risk Insurance: Opportunities and Pitfalls

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Political Risk Insurance: Opportunities and Pitfalls

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    1. Political Risk Insurance: Opportunities and Pitfalls LAW OFFICES robert wray PLLC 1150 connecticut avenue, nw ? suite 350 washington, dc 20036 main 202.349.5000 ? fax 202.293.7877

    3. The Political Risk Insurance Marketplace Public sector Deterrence Innovation Private sector Absence of public policy constraints Speed Commercial opportunism

    4. Currency Inconvertibility Convertibility and transfer of debt service, dividends, etc. Active or passive blockage Not devaluation coverage – prevailing rate

    5. Currency Inconvertibility: Pitfalls Waiting period Rate at which compensation for blocked local currency is calculated

    6. Expropriation (“CEN”) Various wordings, same general intent Loss of fundamental rights (including creditor’s rights) Outright and “creeping” expropriation Exclusion for bona fide government acts Exclusion for government commercial acts

    7. Expropriation: Pitfalls Wording ambiguity Exclusions Total vs. partial loss coverage Pledge of shares

    8. Breach of Contract/Disputes Plugs government commercial obligation exclusion hole Specific government obligations Failure to honor arbitration award

    9. Breach of Contract/Disputes: Pitfalls No better than the underlying agreement with the government What you can recover The arbitral forum Typically no faster recovery than the arbitral forum allows Inability to obtain a timely (or any) award

    10. Political Violence Broad spectrum of events: from war to civil commotion, including terrorism Causing a loss For loans: default For equity: damage or inability to operate Book/replacement value compensation for damage Lost income or investment book value for inability to operate

    11. Political Violence: Pitfalls Disputed causation Damage to what? Loss without damage

    12. Some General Issues Waiting periods Percentage of coverage Term Exclusions and limitations Claims arbitration Creditworthiness

    13. Pitfalls and Opportunities Choosing the right insurer for the transaction and the buyer (price isn’t everything) Negotiating the terms and wording Breaking new ground Managing the claims (and incipient claims) process

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