Political Risk Clause
The political risk clause extends property or credit cover to losses caused by expropriation, confiscation, nationalisation, currency and transfer restrictions, or a change of government in politically unstable markets.
- Clause type
- Extension
- Origin/Market
- International programme
- Favours
- Insured
- Negotiability
- Negotiable
Purpose
Investments and supply relationships in politically unstable markets are exposed not only to ordinary property and liability perils but also to the risk of state intervention. The political risk clause extends a property or credit policy to cover losses from expropriation, confiscation without compensation, nationalisation, sudden currency or transfer restrictions, and politically motivated violence such as insurrection, revolution or terrorism, to the extent these events are not already covered under other clauses.
Effect and limits
Cover generally responds only to acts of a state or state-like authority, not to ordinary commercial or contractual disputes; sanctions consequences, moreover, are frequently addressed separately by a sanctions clause and excluded here. For very large single risks in emerging markets, political risk cover is often supplemented through specialised multilateral or state institutions such as MIGA or national export credit agencies, since private market capacity can be limited.
Negotiation and practice
When reviewing the cover, it should be clarified whether only physical losses (such as confiscation of assets) or also pure financial losses (such as transfer restrictions) are included, and what waiting periods apply before an expropriation event is established. Programme leaders should align the clause with a separate sanctions clause to avoid coverage gaps or duplication.