‘Interest Only’ Project Finance


‘Interest Only’ Project Finance

Insurance instruments can provide valuable credit enhancement to capital risk, especially in environments such as, but not limited to, emerging and developing economies. Having mentioned ‘Interest Only’ financing in my last blog a description of this technique can only add weight to the intelligent use of the insurance markets as a valuable aid to project finance.

One of the major problems encountered with developing/emerging economies is that long-term capital for business development would be a preferred solution under normal circumstances, but the instability risks dictate short-term exposure. For certain types of project ( typically < USD 50 million requirement) where, for instance, there is a quality Western off-take to cover debt service, there is a technique that can be applied that utilises insurance products to change the country risk profile of the project and thus permit long-term financing on an attractive risk profile. This technique involves over-lending and traditionally works on the basis that the advance to the project includes an amount that is specifically used to purchase an asset, in the form of a deep-discounted instrument, to insert into the Balance Sheet of the borrower and which is pledged to the lender, and has a guaranteed maturity value equal to the total capital lending. The deep-discounted instrument is usually a stripped-USD Treasury or zero-coupon bond thus changing the risk profile of the borrower to that of the US Government for capital purposes. The borrower pays interest (albeit at a premium rate over a comparative rated borrowing, but much lower cost of finance than a straight borrowing) on the total borrowing through a lien over the off-take proceeds. (Please do not confuse this process with so-called leased assets that cannot be pledged)

The benefit of this structure is that all debt service by the borrower (which is all interest) is normally tax deductible, thus making the effective cost of money relatively cheap. Furthermore, so long as the borrower has no beneficial interest in any excess value of the US Treasury on maturity then it is normally possible to negotiate a tax exemption with the relevant tax authorities relating to the capital gains over the lending period. In reality all that has happened is that the lender has inserted a valuable asset, that can be pledged, into the borrowers Balance Sheet that otherwise would not be capable of providing suitable security.

The advantages of a stripped Treasury solution is the fact that it provides an “AAA” rated security which is easily disposed of in the event that the lending terminates early. What is not known is the discount price at the time of such disposal, or the value of the security/collateral at any point in time throughout the term. This can be a problem with booking such a transaction. Furthermore the current 10 year yield on US Treasuries is too low for such purposes making the over-borrow costs too expensive.

Let us examine how we might improve on this situation using insurance products rather than a stripped-bond.

There are a number of insurers that offer guaranteed growth funds in various guises currently producing yields in excess of 8% p.a. Many are investment grade credits and, over a 10 year term, tend to out-perform bond yields. What is more interesting is that many of these insurers are also now owned by major banks. If the lender were to use the over-lending amount to invest in such a fund and use the policy as the Balance Sheet asset with assigned rights to the total value of the proceeds (which are generally tax-exempt) then two prime advantages exist. Firstly, the value of the policy cannot reduce in value irrespective of market conditions as the price of units cannot go down in value. The only factor that can affect the value is if surrender occurs early in the term in which case there are likely to be early surrender penalties (around 5%). Secondly, as such a fund will normally out-perform bond yields, there is likely to be a profit which can be secured as a maturity fee. Therefore, for a reduction in credit rating from “AAA” to probably “AA” we have achieved a far more stable collateral value and with a probable profit.

This type of structure only really works for financings of 10 years or more but demonstrates that the insurance market can facilitate financings that otherwise would not have been possible on very attractive terms to both borrower and lender. Some guaranteed growth funds will also provide life assurance cover as part of the fund package thereby allowing the lender to assure the lives of key borrowers at no extra cost yet provides more risk mitigation.

We have successfully executed such structures where the lending bank has used its own subsidiary insurance company investment funds to generate the capital redemption amount thus accruing all of the fund fees and charges for their own institution.

Let us extend this type of structure one step further to provide some interest cover in the event that the off-take does not generate enough cash flow to service debt financing. Most of these guaranteed growth funds have an encashment facility which can be used by the policy holder to draw regular income up to a certain percentage of the profits of the fund. A very simple calculation will determine by what ratio the initial premium needs to be leveraged in order to secure the require exit value whilst providing the capacity to draw income for both the interest cost of the leverage, and any underpayments on debt service. This would be invisible to the borrower, and would not remove the liability on the borrower to make good any short-fall. However it would prevent the need to reclassify the risk on the original loan in the event of an interest payment default.

Let us now attempt to define the benefits to such a financing through an example of a privately (socially) owned food processing factory in a emergent economy that suffers from the aftermath of a period of undemocratic control where asset values are difficult to define, and the legal framework makes any form of security charge unacceptable. The company requires to modernise its facilities in order to comply with the requirements of its major (good covenant) Western customers. The company has exported over 70% of its production to these customers with hard currency payments for a number of years, and their customers are prepared to enter into long-term off-take contracts with the company. The cost of the required modernisation is $25 million which would require a term of 10 years to service with no capital repayments in the first 2 years. Political Risk insurance is available at 2.75% p.a. but only for 2 years with renewal options at the discretion of the insurer. The off-take commitments would provide at least 2.5 times debt service cover after operating costs over the term. There is no active bourse. Corporate tax rate is 48%. Local borrowing costs, if such funds were available, would exceed 16% p.a.

As a banker this is an attractive project, and if this was a company located in a stable Western democracy this requirement would be a reasonably trivial project finance possibly using a combination of export credits, leasing structures, equity placement, term loans, etc. Given the environment in which the company resides, and through no fault of the company, the required financing using conventional finance solutions is practically impossible, especially with the lack of term political risk (primarily business disruption) cover. Even if a two year rolling facility were negotiated the company would be restricted on what it could do knowing that there was a possibility that the facility could be called if the political risk cover were withdrawn. Furthermore the combination of high interest rate charges and insurance premiums would make the cost very unattractive in terms of cash flow and investment strategy for the borrower.

We need to change the risk profile in order to structure a financing that will provide a financial environment that can reasonably be supported by the borrower, and will be an acceptable credit to the lender. Having determined that we can achieve the tax exemption for a stripped-Treasury solution on condition that we advance 10 year term funds we establish that the deep discount price is 44¢ thus requiring $22.5 million of over-lending. Let us assume after all costs and fees the total advance is US$ 50 million. Using a real template from a suitable guaranteed growth fund using a conservative 7.5% growth (8.5% yield) our $22.5 million will grow to US$50,659,488 after 10 years after all costs. As this yield is only nominally above bond yields it would be reasonable to suggest that expectation would be for a higher return. I should mention that once the gains in any years are rolled into the capital amount the guaranteed amount by the insurance fund is the new capital amount. We have now moved most of the capital risk to a friendly domicile and enhanced our credit rating to investment grade.

We now need to structure the interest payments. As we have an investment grade covenant on the capital repayment the interest rate can be set at a level which reflects this partial credit enhancement. If we assume that an “AA” rated lending would be LIBOR+1%, the covenants from the borrower’s customers would warrant no more than LIBOR+2%, and we can achieve cover for political risk inclusive of business disruption and force majuere albeit on a renewal basis at 2.75% on exposure adding 21 bps to the cost. Therefore we calculate that LIBOR+2.5% would provide an attractive return to the lender.

Banker’s Perspective

Loan:               US$ 50,000,000

Term:              10 years, bullet repayment at maturity secured by major insurer

Interest:          3 month LIBOR+2.5%, payable quarterly in arrears

Security:          “AA” covenant on capital, Quality off-take covenants for interest,

“AAA” rated political insurance for disruption of business

Fees:                US$ 2,500,000

Bonus:             Uplift on Guaranteed Growth Fund policy proceeds

Borrowers Perspective

Loan:               US$ 25,000,000 for modernisation, US$ 22,500,000 asset purchase

Term:              10 years, interest only

Fees:                US$ 2,500,000

Assuming for simplicity of illustration that US$ LIBOR was 5% throughout the term which would result in a total repayment by the borrower over the 10 year term of US$37,500,000

Equivalent Cost of funds pre-tax;     8.6% + Insurance Premium of 21bps

Equivalent Cost of Funds post-tax:   4.5% + Insurance Premium of 10bps

As can be clearly seen the introduction of insurance products has made an otherwise difficult transaction into a very attractive proposition for both the borrower and the lender. Furthermore there is the goodwill element between the bank and borrower for future business as the emergent country stabilises. As a footnote, the fund management fees indicated by the example were US$18,383,979 thus making this financing substantially more rewarding for all financing parties than an alternative conventional lending.

There is a further level of sophistication to this solution which reduces the initial capital risk to the lender, but requires more attention to the capital risk at the ultimate exit. If it is anticipated that the instability of the country of the borrower will significantly improve over the financing period, and the insurance fund is a consistent performer, then it is possible to reduce the over-borrow amount by gearing the amount placed into the insurance fund at a much lower cost (capital and interest of the gearing amount guaranteed by the insurance fund and thus LIBOR+1% is achievable) benefiting from the yield on the growth of the gearing amount less the interest cost). We have successfully geared at 3:1 with good results but a full explanation of the dynamics of this enhancement is beyond this blog discussion.


The superior nature of Syndicated Insurance for Project Finance


The superior nature of Syndicated Insurance for Project Finance

Syndicated Insurance for construction projects is well defined for projects throughout much of the world. However other types of project require a tailored approach depending upon the defined risks involved. But the principle of syndicated insurance for project finance is not just an insurance solution – but a global comprehensive risk management tool for qualifying projects.

 Integrating comprehensive event risks into loan/bond documentation was initiated by myself with invaluable help from Dennis Parker (from Aon in London), and Clifford Chance (law firm) both in London and New York. It took 7 months of negotiation with bankers and underwriters to achieve a wording consistent with formal offering documents such as Trust Indentures in order for acceptance, albeit that it was the important endorsement of investors that finally achieved acceptance.

 It might be helpful to define the diverse range of insurance products available to the project finance specialist to understand the problem with the conventional approach to adding event risks to a financing, whether public or private placement, syndication, or bond issue. I would also include quasi-equity products such as convertible debt structures into this group.

Types of Insurance Products Available for Project Finance

Insurance products for project finance can be conveniently discussed from two different perspectives, i.e. those that require Political Risk insurance (developing and/or politically unstable countries), and those that do not. However the crossover point can be fuzzy as the need for such political risk is not only applied to developing or emergent economies but can vary depending on the term of a transaction for so-called industrialised countries. The fortunes of countries wax and wane, both through domestic political situations, and adverse effects of global economic conditions. The normal determinant is whether or not a country has an acceptable credit rating from Standard & Poor or Moody for the term of the proposed transaction, albeit  such ratings can adversely change for any country very quickly as we have seen in the Eurozone countries.

Just by way of example of how fuzzy the parameters for determining whether or not political risk cover is required in any of its various forms we only need to look at how many major countries or cities in the world would now require civil disruption, riots, or terrorism insurance cover for certain types of project.

Add to this the general myth that a corporate within a country cannot borrow at cheaper interest rates than the Government (sovereign debt) of that country then it is easy to understand why there can be confusion. Utilising insurance-based risk mitigation, which has the effect of credit-enhancing the transaction by effectively moving the domicile and credit rating of part of the risk, can easily result in lower costs of borrowing than the project country risk would otherwise dictate.

The general classifications of insurance products used in project finance are:

  • Investment Risks – Inconvertibility, Expropriation, Creeping Expropriation, War, and other Political Violence
  • Collateral Deprivation Risks – Asset Repossession and Deprivation, Civil Disruption
  • Non-payment Risks – Commercial and Political Causes, short medium and long-term credits, leases, Documentary Credits, Promissory Notes
  • Contract Frustration Risks – Including Wrongful Calling of Guarantees, Non-Delivery
  • Transportation Risks – In-transit risks
  • Credit Enhancement – Third Party credit, asset securitisation, cash flow securitisation
  • Business Disruption – Third party commercial disruption e.g. utility and transportation disruption
  • Transfer Risks – Repatriation of Investments, Debt and Leases payments, etc.


Project Finance Requiring Political Insurance

This is a specialised area of insurance as, by definition, the project is in a territory that has less certainty of political stability and/or appropriate legal structure than one would like in order to secure an investment or lending position in the event of problems. Such political insurance is available to cover a whole host of possibilities such as:

  • Confiscation, Expropriation, and Nationalisation
  • Forced Abandonment
  • Transfer Risk
  • Refusal of host Government of Repossession and Disposal Rights
  • Contract Repudiation
  • War, civil war, civil unrest,  and terrorism

However there can be a number of interested parties that need cover within any one project, and there can be a number of different scenarios that require the security of a political insurance wrap in order that they are effective. This is further complicated by the fact that it is not always possible for any one insurer to assume the total insurance package thus various legal platforms for each insurable risk need to be interpreted and reconciled.


One of the prevalent features of international commercial life is the need to issue on-demand guarantees to satisfy advance payment, performance, and warranty obligations. Bank bonding has been the traditional source of such bonding but this is another area where insurers can provide a far more reasonable and appropriate instrument.

If we consider conventional bank demand bonds it is easy to understand why they are an onerous burden on the provider, and gross overkill on the part of the receiver. The onerous burden on the provider includes the capability of the receiver to call the bond at will without declaration of default, and the burden is then upon the provider to prove whether or not there is good and reasonable cause, and if not then the burden is upon the provider to reclaim their money which is both time consuming and expensive. Banks do not generally accept any responsibility for payment under an invalid presentation of such bonds. Although such risks as invalid presentation can be covered through insurance this is yet a further unnecessary and avoidable cost.

Having studied this problem for some years it became apparent that it is frequently possible to clearly define the conditions that would reasonably justify a call on such a bond. Therefore it has been possible to negotiate with insurers the development of a demand bond that is more reasonably aligned with the purpose of its existence, and callable on demand by the receiver given a specific event of default by the provider. This bonding has a number of significant advantages over bank bonding namely:

  • The bond is an off-Balance Sheet instrument for the provider and thus no adverse gearing implications;
  • It does not consume valuable bank facilities that might otherwise be better utilised;
  • They are more flexible in that there can be a number of callable events with different levels of monetary penalty;
  • It is usually cheaper.

The practical application of such bonding is fundamentally unchanged other than the bond will be defined in a contract which will also define the events under which the bond can be called, and the associated amount. In the event of a claim by the receiver the only change is that the receiver must lodge a formal notice of specific default with the insurer to invoke the demand for payment. Such payment will be made upon presentation of such claim. In the event that the claim proves invalid then it is the insurer, not the provider, who will pursue recovery. This takes the burden from the provider and imposes a more disciplined attitude to default claims by the receiver.

There are a small number of specialised brokerage houses in London that specialise in the arrangement of such bonds.

Problem Summary

Albeit that there is a whole spectrum of insurance-based products available that can be beneficial to a project financing the problem is that we have a multitude of insurers/underwriters using different types of wording on different platforms, and even in different legal jurisdictions. This does not make lenders very comfortable as they do not know which insurer is assuming what risk, or whether there are gaps between the various wordings that potentially leave the borrower, thus lender, exposed. Furthermore many of these products are annual renewable whereas a typical project will involve 5 – 10 years of debt service. The downside for the project promoters is that they would not benefit from the potentially large discounts from consolidated premiums, nor the benefit of reduced debt pricing because of the lack of confidence in the event risk integrity.

A Practical Example Using Syndicated Insurance to Credit Enhance Capital Risk

One of the major problems encountered with developing economies is that long-term capital for business development would be a preferred solution under normal circumstances, but the political risks dictate short-term exposure. For a lender or investor to consider long-term capital the event risk cover must look like an integral part of the asset risk financing, and be of a quality that the integrity and robustness matches that of the financing terms. Thus we need, at the very least, the matching concept of a single underwriter assuming the lead in the event risk package, i.e. syndicated insurance.

Rather than consider how to build a syndicated insurance product for a generic project I would like to demonstrate how this product was derived for the very first complete application of syndicated insurance. I had already used a subset of this idea for previous projects in Eastern Europe, and successfully applied it for an Interest Only financing that I devised and structured for a capital financing in the former Czechoslovakia written by Deutsche Bank, Frankfurt (look out for ‘Interest Only financing’ as a future blog).

The project presented to me was a requirement of USD 100 million for an oil & gas development and production project in Western Siberia, Russia and in which Deutsche Morgan Grenville was already an equity investor for the exploration phase, and a solution would have a co-lead of HSBC and Deutsche Bank. It was in the Yeltsin era in Russia and no-one wanted to invest or lend for Russian projects. The company was a joint venture between a USA company (provider of finance and drilling expertise) and a Russian company (owner of a valuable Exploration, Development, and Production Sharing Agreement (EDPSA) negotiated by the USA company). Even though the assets (oil & gas) were proven and considerable they were in the wrong place at the wrong time and thus conventional funding did not arouse any interest. At that time no public bond offerings had been successful.

An overview of the primary criteria that needed to be considered:

  • The terms of the EDPSA stated, as a condition, the need for evidence of the availability of all of funding needed to develop the field. Funds were needed for 3 years with repayment within 5 years.
  • The joint venture company was Russian (this was not safe then, and recent problems encountered by BP in Russia confirm that not much has changed). If USD 100 million was injected into the joint venture company it could easily disappear.
  • All oil had to pass into the state-owned Transneft pipeline as Urals blend and could be diverted to Russian refineries (payment issues & business disruption if otherwise sold)
  • Western Siberia is a frozen wasteland in the winter, and a swamp in the summer thus sand pads with interconnections would be required (transportation issues)
  • There was only one power station in the region – very old, and the workers had not been paid in over 3 months (business disruption risk as surface equipment such as separators and compressors need energy supplies)
  • Third party transportation risk of piping crude oil to Novorossiysk on the Black Sea.

In spite of the considerable proven oil reserves even the hardened oil & gas investors had no appetite for this financing unless the risk profile could be dramatically improved. It was obvious from the outset that merely attaching a number of insurance products to the investment would still not attract interest. The conventional source of a political wrap for this financing, MIGA (the insurance arm of the World Bank), wanted a 3 – 6 month review period and a large amount of money in fees with no commitment to provide anything.

Thus a different approach was needed if we were to credit enhance this offering to make it attractive. It was clear that we needed, at least, to tap into just about every insurance product in our tool chest, and which ordinarily would provide a complex mix of wordings, platforms, and jurisdictions.

Some of the primary considerations were:

  • This financing could not be a conditional debt structure as this would not satisfy the terms of the EDPSA.
  • Asking investors to provide equity (conventional financing for oil & gas for pre-production activity) would not work. Thus a convertible debt structure would be needed through a public offering to capture the largest market of investors available, and providing an element of liquidity to investors.
  • The USD 100 million could not be placed into the Balance Sheet of the Russian j-v company. A trustee arrangement would be needed where a credible third party acceptable to all parties, and especially the Russian partners, could provide confirmation of available funds, but only release funds against confirmation of agreed deliverables. This trust arrangement would also have to provide unconditional comfort to the investors that their money was safe from unauthorised call by anyone, including a Russian court.
  • In order to achieve the comprehensive range of event risk protection needed we would need to convince the underwriters that every risk that could be mitigated through good corporate governance has been identified and addressed, e.g. placement of a generator on the field to satisfy the energy requirements of the array of separators and compressors needed to keep the oil flowing to the pipeline.
  • A secure off-take of the oil from Novorossiysk by a trusted Western company well placed in that arena.
  •  All oil payment receipts would need to be directed to the trustee with the full co-operation of the Russian j-v partner, and the Russian authorities (payment of their share of the oil revenues plus any taxation due from the j-v company)
  • Managing cash flow to keep the fields producing in the event of any third party business disruption

Having agreed these requirements in principle with all relevant parties, Dennis Parker and myself prepared a single event risks policy inclusive of all political risks and bonding requirements (irrecoverable political disruption, i.e. forced abandonment, would trigger a full refund to all investors). Insurance risks had never previously been included in the main body of a Trust Indenture but I knew that if we could achieve inclusion for this issue the financing would be significantly more attractive to investors. Clifford Chance provided oversight to this process to ensure that the drafting was consistent with Trust Indenture requirements. This process was complicated by the fact that the chosen trustee was Bank of New York who wanted their obligations written under US law, and specifically New York State law, whereas the main body was under English Law with Norwegian Arbitration.

Whereas I was concerned that we would not find a suitable single lead underwriter for such a comprehensive package I have the competence of Dennis Parker to thank for a relatively easy task.

Both HSBC and Deutsche Bank agreed to put the package to the appropriate authorities for consent to launch the issue. The road show would be the litmus test. We organised presentations to investors in 14 cities in just 28 days. We were oversubscribed after the eleventh city, Toronto – we had a product that satisfied the most hardened of investors.

This project financing demonstrated that event risks and asset risks can rank pari passu with each other providing integrity into project finance that fits the requirement in difficult environments, and at an affordable price. The credit enhancement meant that we could set a coupon yield at 10% against sovereign debt of 14.75% for Russia at that time, and with a total insurance premium of just 1.75% per annum of actual exposure for the term of the issue. This is the power of syndicated insurance for project finance.

Aon and Willis provide syndicated insurance – at last!


Aon and Willis provide syndicated insurance – at last!

Last week Willis announced their initiative to provide syndicated insurance, referred to by the FT as ‘passive’ underwriting. Earlier this year Aon announced the same syndicated insurance methodology. I have seen criticism of this scheme but structured project finance specialists such as myself have been screaming for this methodology since the mid 1990’s.

The reports that I have read attempting to describe this offering do not fully appreciate why this is so necessary in the corporate sector, so a little background might be useful. Banks are in the business of asset risk, whereas insurance companies are in the business of event risk. When a prospective borrower presents a project to a bank, that bank will take the responsibility to evaluate the project and the financing requirement, including the associated inherent direct and indirect risks. The bank will then decide whether or not to fund the project. Little does the borrower know that the bank is likely to syndicate this funding with a number of other banks each taking a percentage of the financing based on the good judgement of the borrower’s bank. If funded through a private placement then this syndication will be invisible to the borrower.

The bank is likely to identify certain event risks, e.g. business disruption, for which it will need insurance cover. Using traditional methodology the borrower will then have an insurance broker approach the insurance underwriters to arrange cover for the various event risks identified. What comes back is a number of policies using different wording platforms, and even different legal jurisdictions. This does not instil confidence into the bank’s risk profile, and why banks generally do not give credence to what these various policies purport to provide. In the event of a potential claim which underwriter does the bank approach?

I would like to introduce 2 extracts from a MBA text book on structured project finance that I co-authored in 1999. Both are from one of the chapters called ‘The Role of Insurance in Project Finance’.

“Our own experience suggests that both insurers and bankers generally state that they are flexible and adaptable, but in practise usually confine themselves to tried and tested solutions. For example it took two years of negotiation, cajoling, and debate convincing insurers that the structure of our “One-Stop” Construction Risks product was a radical and valuable improvement in the provision of a reliable solution for the support of major construction project financing. If I had to identify the major factor in the reluctance to adapt to the inherent changing role of the insurer with such a product it was the degree of change in approach of providing a packaged integrated risk mitigation solution which is flexible, but contained to one major lead underwriter on one legal platform. In essence we did no more than to use tested principles of bank syndication and adapted it to the insurance market. The initial reaction of the bankers was “too good to be true”. The lawyers view was that it would remove at least 80% of construction litigation as many of the difficulties inherent in construction litigation and particularly as to the apportionment and extent of liability could be avoided, but they were not sure that bankers, or even developers, are ready for such a radical shift in thinking.

On the other hand we have produced an integrated insurance solution [with Aon] for a wide range of project risk mitigation including investor risk, cash flow risk, business disruption, all within a political risk envelope, for a Euro-convertible bond offering for a complex project in Eastern Europe which was only acknowledged by the bankers for what the insurance brought to the deal when the issue was very well received and became oversubscribed, whereas prior to the integrated insurance component there was no interest. In this offering the insurance component was an integral part of the Trust Indenture Agreement [a ‘first’ in an international securities offering] which made for a robust structure to which investors could relate and feel secure.

Our resultant observation is that both parties need to be brought together in a spirit of mutual understanding and co-operation if the bankers are to enjoy the value and benefits available through effective risk mitigation insurance tools, and insurers need to adapt to a more flexible approach to ever changing risk profiles. Furthermore there is a language barrier between these two sectors that needs to be overcome by both parties as misunderstanding plays a large part in the lack of integrated solutions.”

Aon and myself wrote the policy wording that we needed, and Hiscox took the lead underwriter role of the event risk requirements for the eurosecurities issue even though there were aspects of this package that they, themselves did not underwrite. They acted as a lead underwriter and placed all the risk within their underwriter community – invisible to us, just like a bank syndication – and only one underwriter for the bank to engage with.

“Project Finance Requiring Political Insurance

This is a very specialised area of insurance as, by definition, the project is in a territory that has less certainty of political stability and/or appropriate legal structure than one would like in order to secure an investment or lending position in the event of problems. Such political insurance is available to cover a whole host of possibilities such as:


  • Confiscation, Expropriation, and Nationalisation
  • Forced Abandonment
  • Transfer Risk
  • Refusal of host Government of Repossession and Disposal Rights
  • Contract Repudiation
  • War, civil war, civil unrest,  and terrorism


However there can be a number of interested parties that need cover within any one project, and there can be a number of different scenarios that require the security of a political insurance wrap in order that they are effective. This is further complicated by the fact that it is not always possible for any one insurer to assume the total insurance package thus various legal platforms for each insurable risk need to be interpreted and reconciled. It is our firm belief that the current practise with insurers will radically change over time such that one major insurer will assume a lead manager role, much along the lines of a bank lead manager, providing a single source of full insurance cover on one platform.”

It has taken some 13 years for this concept to mature, and I applaud Aon and Willis for their belief and understanding of the need for this approach. I hope that the banks welcome this approach with open arms.