Political Risk Insurance: Details and Cost

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Election of Coverage

Coverage elections for most equity and shareholder debt investments are based on a coverage ceiling and an active amount. The coverage ceiling represents the maximum insurance available for the insured investment and future earnings under an insurance contract. Premiums are calculated based on the active amount which represents the insurance actually in force during any contract period.

The active amount under all coverages must equal at least the book value of the insured investment unless a lower coverage ceiling is elected. There is no charge for the difference between the coverage ceiling and the active amount.

For most other investment types, premiums are computed based on a maximum insured amount, a current insured amount, and a standby amount. The maximum insured amount represents the maximum insurance available for the insured investment under an insurance contract. The current insured amount represents the insurance actually in force during any contract period. The difference between the maximum insured amount and current insured amount is the standby amount. Separate premiums are charged for current insured amount and standby amounts. For loans, premiums are charged on the “covered amount,” the amount of disbursed principal plus accrued interest less principal paid to date, and a standby fee is charged for undisbursed principal.

Extent of Coverage

Insurance policies for equity coverage are available for up to 20-year terms. For loans, leases, and transactions covered by the contractors and exporters insurance product, the term is generally equal to the duration of the underlying contract or agreement.

DFC can insure up to 90 percent of an eligible investment. DFC’s statute generally requires that the investor bear at least 10 percent of the risk of loss. However, loans and capital leases from financial institutions to unrelated third parties may be insured for 100 percent of principal and interest.

Costs

Investors should contact DFC’s Insurance Office directly for information on pricing as it is varies by project.