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280440Paper0international0po INTERNA International Political Risk Management: The Brave New World is the latest in a series based on the International MIGA–Georgetown University Symposium on International Political Risk Management. Volumes in this series offer leading-edge assessments of needs and capabilities in the international political risk insurance industry. These assessments come from 19 experts in the fields of international investment, finance, insurance, and academe. T I Public Disclosure Authorized O Contributors to this volume consider “The Brave New World” of the political risk insurance (PRI) industry in NAL PO political the wake of September 11, 2001, the Argentine economic crisis, and other upheavals. The book begins with the supply-side perspective of insurers and then turns to the concerns of investors and lenders, in particular those involved in large infrastructure projects in emerging markets. It concludes with in-depth assessments of new challenges to definitions and coverage of currency transfer, expropriation, breach of contract, and politi- cal force majeure. The diverse and detailed arguments collected here come together in a surprising consen- LITI sus: recent changes, contractions, and even losses are fueling the search for creative solutions and will ulti- mately prove beneficial for the industry and its clients. CAL RISK M An in-depth analysis from the front lines of international political risk management, this book will be a valu- able guide to those who are considering private sector investments in the developing world, whether as equi- ty sponsors, lenders, or insurers. It should also be of interest to independent analysts and scholars working in risk the field of political risk management. ANAGEMENT Public Disclosure Authorized Theodore H. Moran is Karl F. Landegger Professor of International Business Diplomacy at the School of management Foreign Service, Georgetown University. The author of some 60 articles and 12 books on trade, technology, and investment issues, Professor Moran has served as Senior Advisor for Economics on the Policy Planning Staff at the U.S. Department of State. He has been a consultant for more than two decades to corporations, governments, and multilateral agencies on investment strategy, business-government negotiations, and politi- cal risk management. THE BRAVE NEW WORLD Contributors James D. Alford, Citibank; David Bailey, Sovereign Risk Insurance Ltd.; Charles Berry, Berry Palmer & Lyle Limited; Vivian Brown, Berne Union; Brian Duperreault, ACE Ltd.; Kenneth W. Hansen, Chadbourne & Parke LLP; Witold J. Henisz, The Wharton School; Motomichi Ikawa, MIGA; David James, Ascot Underwriting; Felton (Mac) Johnston, FMJ International Risk Services, LLC; Julie A. Martin, MMC Enterprise VO Risk; Keith Martin, MIGA; Anne H. Predieri, Banc of America Securities LLC; Edith P. Quintrell, OPIC; Daniel W. L Riordan, Zurich Emerging Market Solutions; John J. Salinger, AIG Global Trade & Political Risk Insurance Co.; U Gerald T. West, MIGA; Bennet A. Zelner, Georgetown University; and Audrey Zuck, Willis. ME II Public Disclosure Authorized Theodore H. Moran, Editor GEORGETOWN UNIVERSITY ™xHSKIMBy356494zv":&:<:%:^ THE WORLD BANK GROUP Multilateral Investment Guarantee Agency ISBN 0-8213-5649-6 Public Disclosure Authorized WORKING PAPERS SERIES ON CONTEMPORARY CHALLENGES FOR INVESTORS, LENDERS, AND INSURERS International Political Risk Management The Brave New World International Political Risk Management The Brave New World Theodore H. Moran, Editor The World Bank Washington, D.C. © 2004 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC 20433 Telephone 202-473-1000 Internet www.worldbank.org E-mail [email protected] All rights reserved. 1 2 3 4 07 06 05 04 The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of the Board of Executive Direc- tors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank con- cerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank encourages dissemination of its work and will normally grant permis- sion promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center, Inc., 222 Rose- wood Drive, Danvers, MA 01923, USA, telephone 978-750-8400, fax 978-750-4470, www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, World Bank, 1818 H Street NW, Washing- ton, DC 20433, USA, fax 202-522-2422, e-mail [email protected]. ISBN 0-8213-5649-6 Library of Congress Cataloging-in-Publication Data has been applied for. Contents Preface viii List of Acronyms x Introduction 1 Motomichi Ikawa, Multilateral Investment Guarantee Agency Part One Political Risk Insurance Providers: In the Aftermath of the September 1 1 Attacks and Argentine Crisis Overview 7 Theodore H. Moran, Editor Political Risk Insurance after September 11 and the Argentine Crisis: A Public Provider’s Perspective 15 Vivian Brown, Berne Union Political Risk Insurance after September 11 and the Argentine Crisis: An Underwriter’s View from London 26 David James, Ascot Underwriting The Impact of September 11 on Trade Credit and Political Risk Insurance: A Private Insurer’s Perspective from New York 39 John J. Salinger, AIG Global Trade & Political Risk Insurance Company v vi INTERNATIONAL POLITICAL RISK MANAGEMENT In the Aftermath of September 11 and the Argentine Crisis: A Private Reinsurer’s Perspective 45 Brian Duperreault, ACE Limited Commentary on Political Risk Insurance Providers in the Aftermath of September 11 and the Argentine Crisis 53 Julie A. Martin, MMC Enterprise Risk Part Two Political Risk Insurance in the Aftermath of September 11 and the Argentine Crisis: Demand Side Issues Overview 67 Theodore H. Moran, Editor PRI and the Rise (and Fall?) of Private Investment in Public Infrastructure 75 Kenneth W. Hansen, Chadbourne & Parke LLP Political Risk Insurance as Penicillin? A Lender’s Perspective 100 Anne H. Predieri, Banc of America Securities Audrey Zuck, Willis Commentary on Political Risk Insurance in the Aftermath of the September 11 Attacks and the Argentine Crisis: An Underwriter’s View 116 Daniel W. Riordan, Zurich Emerging Markets Solutions Commentary on Political Risk Insurance in the Aftermath of the September 11 Attacks and the Argentine Crisis: A Lender’s Perspective 121 James D. Alford, Citibank Part Three Shall the Twain Meet? Finding Common Ground or Uncommon Solutions Overview 125 Theodore H. Moran, Editor CONTENTS vii Finding Common Ground or Uncommon Solutions: An Independent Consultant’s Perspective 132 Felton (Mac) Johnston, FMJ International Risk Services, LLC Shall the Twain Meet? Finding Common Ground or Uncommon Solutions: A Broker’s Perspective 138 Charles Berry, Berry Palmer & Lyle Global Political Risk Management: A Strategic Perspective 154 Witold J. Henisz, The Wharton School Bennet A. Zelner, McDonough School of Business Commentary on Finding Common Ground or Uncommon Solutions: A Private Provider’s View 171 David Bailey, Sovereign Risk Insurance Ltd. Commentary on Finding Common Ground or Uncommon Solutions: A Public Provider’s View 177 Edith P. Quintrell, Overseas Private Investment Corporation Appendixes I Biographies of Authors 181 II Political Risk Investment Insurance: The International Market and MIGA 192 Gerald T. West, Multilateral Investment Guarantee Agency III International Political Risk Management: Exploring New Frontiers 217 (Table of Contents and ordering information) Theodore H. Moran, Editor IV More About MIGA 220 Index 225 Preface International Political Risk Management: The Brave New World is the second in a series of volumes based on the MIGA–Georgetown Uni- versity Symposium on International Political Risk Management. Like its predecessor, this volume offers leading-edge assessments of needs and capabilities in the international political risk insurance industry. These assessments come from senior practitioners from the investor, financial, insurance, broker, and analytical communities who attended the Symposium at Georgetown University on Octo- ber 25, 2002. The volume leads off with the perspective from the “supply side” of how the political risk insurance market has reacted to the events of September 11, 2001, the Argentine economic crisis, and other cor- porate upheavals. It then turns to “demand side” concerns of investors and lenders, in particular those involved in large infra- structure projects in emerging markets. It concludes with an assess- ment of “finding common ground or uncommon solutions” in the face of currency crises, and new challenges to the definitions of expropriation, breach of contract, and political force majeure. The uncertain and unsettled nature of the arguments contained here makes the use of the subtitle “The Brave New World” particularly appropriate. But the diverse and detailed arguments in this volume come together in a somewhat surprising consensus that change,
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