Natural Resources and Violent Conflict - WaterWiki.net

attracting reputable companies 323of the insurance market. The global capacity of the main reinsurancecompanies has shrunk from some $800 billion to $600 billion. 27 In allclasses of insurance, clients are asked to carry a higher proportion ofpotential losses than before; they are required to present more detailedevidence of measures taken to mitigate risks; and their policies are moretightly worded. Against this background, it is more difficult to obtainrisk cover for projects in developing countries, particularly where thereis a high risk of conflict.Political risk insurance has traditionally focused on three mainareas:• Expropriation, including arbitrary governmental renegotiationof contracts as well as outright confiscation• Currency transfer• War and civil disturbances.Insurance is not available for many other kinds of risk that might beclassified as “political,” for example, reputational damage arising fromthe campaigns of nongovernmental organizations.Larger companies such as British Petroleum increasingly managetheir own insurance requirements, either through captive companiesor through some other financial provision. Other companies commentthat political risk insurance is an extra cost that they prefer not toincur. However, they may be forced to do so by the demands of externallenders. 28Private Political Risk Insurance MarketLloyd’s of London provides the largest market for political risk insuranceand services brokers acting for a wide variety of internationalclients. Political risk insurance is also available on U.S. markets, notablyvia the AIG Group.The availability of insurance cover is often determined—somewhatarbitrarily—by the amount of capacity assigned to individual countriesor classes of risk by insurers and reinsurers. However, a seniorLloyd’s broker interviewed for this chapter insisted that there were“bags of capacity” for “good projects,” including, for example, a welldesignedoil or mining project in Africa. From an underwriter’s pointof view, the definition of a good project is often one that involves awell-known company with a favorable record. Typically this means alarge Western firm. An application for insurance from a junior or lesswell-known company requires closer scrutiny. He added that insurersmight influence the financial structure of a deal but seldom have thepower to decide whether it goes ahead or not: “If a project is going tohappen, it’s going to happen.”