The international situation, exacerbated by numerous armed conflicts and the proliferation of terrorism threatens the profitability of investments.
Solmondo optimises the solutions for transferring these risks based on a documented presentation of the risk.
Solmondo nurtures and structures a lasting partnership with insurers to obtain the ideal cover for investments and the best compensation in the event of a claim.
Solmondo also offers inventive solutions for construction equipment.
The form of political risk and the risks covered
Solmondo protects investments against several forms of political risk:
Deprivation of business ownership: Outright confiscation or prolonged incapacity to work: the risk is associated with a deliberate intention to harm a specific foreign company and that leads to the shutdown or distrain of the firm (non-renewal of import or export licenses, port authorizations, administrative harassment, irregular supply of energy ...). Changing regulations can be associated to this field when they correspond to discriminatory measures against one or more foreign companies.
Government unable to keep civil peace: Results in the risk of destruction of assets from all forms of political violence: riots, war or civil war, terrorism...
Financial failure of the government: The government's failure can also concern the financial conditions of the conduct of business: convertibility loss and difficulty in performing financial transfers (repayments of advances on current accounts, dividends).
Forced abandonment: Different political events may force an international group to cease its activities in a given country. Recurring acts of terrorism endangering the lives of workers and families can lead to business interruption. When a local company suffers from repeated and obviously groundless controls, "tax harassment" can generate a claim when the investor can prove that the pursuit of his activities is no longer possible in the country, and with a direct causal link.
Exploitation loss: The manifestation of political risk in its various forms often causes the interruption of an activity and subsequently an operating loss for the parent company. For this type of cover, always "tailor-made", Solmondo has particular expertise that will provide an optimal solution based on the specific activity and the international expansion strategy of the investor.
The choice to insure political risk depends on the business sector, the business model of the group and its subsidiaries, and its financial performance. Solmondo advises investors on whether to transfer the country risk or to conserve it. Indeed, Solmondo relies on commercial, technical and financial elements as well as contextual components describing the investor’s expertise, the political environment and the perspectives in order to get the best conditions.
For an investment portfolio, Solmondo offers insurers a structure that makes the cost of insurance perfectly acceptable: for example, multinational groups buy "world" policies. The investor has little control over local political parameters.
- Low capital activities rarely justify investment protection. However, commercial activities are often a prime target during riots. It is therefore necessary to provide specific insurance for stocks located in sensitive sites. Solmondo offers a “political terrorism violence” solution cover for exposed assets. Because this market is highly competitive, they can be subscribed at an advantageous cost.
- Capital-intensive activities are heavily penalised in the event of loss of the production tool. It is therefore strongly advised to transfer the risk to insurers syndicated on Solmondo’s policy wording.
- For businesses that have a rapid return on investment, it may be irrelevant to purchase political risk insurance on the initial investment; but the cover of the operating profit becomes crucial, in the form of business interruption.
- Worldwide risk cover: If the parent company is significantly dependant on external production in sensitive countries, it is vital to provide "loss of production" insurance to prevent that an interruption of activity related to political risk in one of the foreign subsidiaries impact its situation too severely.
- A group established in several countries operates a form of division of its risks that insurers take into account in their analyses for a quotation, according to the geographic diversity of risks, the dispersion and the location of the subsidiaries. Political risk being an "intensity" risk, multinational groups which have insurance captives for their common risks are reluctant to include too large a share of political risk.
- The shareholder’s point of view: as long as the existence of political risk cover is not very widely known (by shareholders, auditors and bankers), there is a form of impunity to overlook this risk. If managers were to neglect fire insurance they would be subject to liability lawsuits, which is not yet the case in France in the field of political risk. Project managers often prefer to focus on immediate profitability by avoiding the payment of premiums, regardless of the risks supported by the shareholders.
- Political risk insurance can be a key instrument in the successful closing of project financing. Indeed, European banks may not be willing to take an underlying country risk when making a loan to the parent company.
A lasting partnership between insurers and investors
Solmondo structures a sustainable partnership with insurers to obtain the ideal cover for investments and the best compensation in the event of a claim.
- Insurers first and foremost assess the investor himself: his know-how, his experience in the sector, his experience in the country in which he invests, his reputation, his negotiating methods and his behaviour in business.
- Secondly, insurers are interested in the host country, always in relation to the activity: the interactive pair (sector, country) is decisive.
- Indeed, sensitivity to political risk results from a combination of interactions, the more or less strategic nature of the activity in the concerned country and also the technicality of the know-how which makes the foreign operator more or less easy to replace.
- Finally, the insurer is interested in his ability to recover, in the event of a claim, the compensated amounts: if the investor leaves the country after incurring a loss, the insurer becomes the owner of the local company. For example, in some heavy industries or intensive farming sectors, an activity shutdown can be very detrimental if diriment. In some cases, after compensation, the insurer could become the owner of an investment that has fully lost its value, which deprives him of any possibility of recovery.
- Solmondo assists the insured in the claim management process as soon as the first warnings arise for optimal compensation in the shortest possible time frame.
- Solmondo plays an essential role in claim management with 3 objectives:
- Quick insured’s compensation
- Limited paperwork for the insured
- Advise on the process of recovery after indemnification.
Creative solutions for the mobile assets of the construction industry (construction equipment, professional vehicles)
Political risk takes the form of deprivation, forced abandonment or destruction of the equipment, whether it is fully owned or leased.
The solutions of cover can be single or global depending on the geographic development strategy of the construction company.