investment insurance
The Business of Credit Insurance, Surety and Investment Insurance American company, A, is investing $10 million into Polish company C, who manufacture and distribute a range of steel products. This investment will represent 20% of company C ‘s total equity. ... The risks involved in this investment are: - that the Polish Government will nationalise the factory so the US company will lose it’s investment. - that the Polish Government will prevent the payment of any dividends to the US either as a political act or to preserve foreign exchange reserves or because there is not enough foreign exchange to transfer in a convertible currency so the dividends get paid but remain frozen in Poland; - that the Polish currency will depreciate against the US dollar and so the value of the investment will fall as well as the dividend in US dollar terms; - that the venture will fail and the returns will not be as expected or indeed that the US company will lose all its investment. I would suggest that company A should take out investment insurance to cover against political risks in Poland, due to difficulties with the Polish economy. ... It may also be possible to get cover on currency depreciation, so as to protect their initial investment of $10 million. Investment insurance will give cover against expropriation, which will protect them against changes in the government, or government actions that would deprive company A of it’s investment. Expropriation includes the nationalisation or confiscation of the investment or of the property of the overseas enterprise. Indirect forms of expropriation by the host government with the intention of discriminating against the investor or the enterprise which have the effect of depriving company A of all of the investment. With most investment insurance companies expropriation action must normally last for at least one year before the fact of expropriation is established for the purpose of claims. ... dollars Before insurance can be obtained investment insurance companies will want to be satisfied that the investment is acceptable to the Polish government. Company A will have a responsibility to observe all local laws and regulations and to satisfy all requirements which Poland may lay down in relation to the investment. ... Breach of contract can be included in the cover which would help to ensure the investment was protected from actions made by the sovereign which effect the obligations of the steel company. ... Although this is also difficult and it is a banking operation not credit insurance or investment insurance. ... He can insist that the company buys credit insurance to protect the receivables (i. ... The underwriters who would cover such risks are: OPIC, which is the American Government Investment Insurance company. AIG, Zurich or Sovereign which are investment insurance companies in the private sector.