Political and Credit risks

Political risk refers to a change that may have a substantial impact on the interests of a company, financial institution, bank or investor, and includes conflict, riots, civil war, etc. It may also take the form of a political decision: blocking the transfer of assets, confiscation, the unilateral refusal of the authorities to comply with their obligations, an embargo, nationalisation, expropriation, etc.

Political risk is a fundamental part of project risk, especially for large-scale industrial projects in unstable regions, emerging countries or detiorating security environments.

This explains why companies need Single Risk or Single Frame insurance: it indemnifies them in the event of non-payment, wrongful termination of contract, non-delivery of goods, confiscation of assets, non-transfer of dividends, non-reimbursement of loan maturities, licence cancellation, etc.

Single Risk insurance provides irrevocable cover for political and commercial risks (i.e. non-payment of receivables) in the context of a one-off and complex contract or project over a long period from the start of the transaction to its end.

Clients who take out this form of insurance include exporters, importers and investors or companies that want to finance projects that are exposed to manifold threats such as non-payment of receivables, insolvency and non-transfer, non-payment of rent, contract interruption, and improper recourse to bonds. Single Risk also protects investments, assets, subsidiaries and holdings abroad against embargo, armed conflict, riots, strikes, wars and acts of terrorism, confiscation, expropriation, nationalisation, dispossession, and changes in legislation.

Credit risk is the risk that a debtor does not pay all or part of its receivables. It may be a business that has bought goods or a service from another company, or a business that has taken out a contract for a loan with a bank or financial institution.

As a specialist in trade credit insurance, Coface evaluates credit risk on a continual basis to help its clients have a full understanding. This solvency depends not just on factors that are entirely internal to the company but also on contextual factors such as geographical location (country risk), the global economic situation, the outlook for sectoral development (sectoral risk) or political risk.