Political Risk Insurance

1. Political Risk Insurance Protecting International Investments April 28, 2014

2. Political Risk InsuranceSpeakers • • Mitchell Aucoin • Marriott International Inc. • • Christopher Brophy • FTI Consulting • Sarah Keeling • FTI Consulting

3. What to Expect • Gain insights into the risks businesses are facing throughout the world. • Understand basic principles of Political Risk Insurance Coverage • Consider the cost-benefit of obtaining Political Risk Insurance. • Review specific issues that may arise on Political Risk Claims.

4. Political Risk InsuranceAgenda • A Risky World • The Basics of Political Risk Insurance • Weighing the Benefits of Political Risk Insurance • Specifics of Political Risk Claims

5. A Risky World • Snapshot of challenging areas around the world. • What does political risk mean to different parties? • - To an equity investor? • - To a bond investor? • - To a reinsurance company? • Political Risk versus Positive Commercial Events

6. A Risky World • The power of government relations and good governance • “You are only an election or revolution away from being on the wrong side” • Frontier markets: good opportunities or unmanageable risks? • Risk: identity, understand, manage and insure against it • Risks: corruption, expropriation, workforce instability, border disputes • How to mitigate – the right relationships, understand your business’ standing • Be a good corporate citizen

7. II. The Basics of Political Risk Insurance • Areas of Coverage • Expropriation • Political violence • Currency inconvertibility

8. II. The Basics of Political Risk Insurance • Offered by Private Insurers and Public Entities • Standalone Coverage or Broader Based • Country Limits • Policy Term • Waiting Periods • Permanent Loss • Supply Chain Disruption • Mitigation of Losses

9. III. Weighing the Benefits of Political Risk Insurance • Historical Objective – Until 2001, PR coverage was purchased (via OPIC & MIGA) to protect against confiscation, nationalization & expropriation of Marriott’s financial assets • Fees - Guarantees - Receivables • Loans - Working Capital • Sept, 2001 - Marriott procured 3 yr policy that provided CEN, CI, PV & BI on global basis • 2002- Marriott has $300k potential CI claim that tests coverage and causes Marriott to rethink its application of PR coverage • 2005 - After careful consideration & evaluation, Marriott terminates its global policy

10. III. Weighing the Benefits of Political Risk Insurance • Benefits • Helps offset investment risk in budgeting or financing of projects • May lower hurdle rate on project’s ability to move forward • Broader coverage terms increasingly provided by private markets • Challenges • Cost – can be expensive • Capacity – Insurers may restrict capacity for certain risks or countries • Does not mitigate financial risk (e.g. currency devaluation or inflation) • For Lenders, policy typically indemnifies principal & interest payments only (e.g. default interest, taxes, increased costs, etc. not covered) • Policies require disclosure of events that might give rise to a claim • When to Use? • After careful evaluation of business, contractual, and political climate • Opening new business (e.g. hotel) in historically unstable region • Investing in projects that require heaving permitting and licenses

11. IV. Specifics of Political Risk Claims • Read your policy • Put insurer on notice early • Consider Waiting Period • Manage Mitigation

12. Questions, Final Comments and Contact Information

13. KEEP THIS SLIDE FOR EVALUATION INFORMATION/MOBILE APP ETC. Please complete the session survey on the RIMS14 mobile application.