Global confiscation insurance programmes on the rise

This is an area of cover that has not developed greatly over the past twenty years but is now being looked at again by the risk transfer industry. "We have more people buying global programmes to cover inventory in storage against political violence but also now buying confiscation programmes to protect their assets globally. They were very much in vogue in the 1980s but fell away a bit when the risk wasn't perceived as that great, but now it is really coming back," he explained. "Confiscation cover is in the process of being developed. Arguably it hasn't developed much in the last twenty years but I think that is changing," added Mr Van den Born.hideThe Arab Spring also highlighted that companies that operate in potential hotspots for political upheaval should look to comprehensive political violence cover as opposed to stand-alone terrorism coverage that is narrowly defined and has proven unable to respond in certain circumstances, he added. Mr Van den Born also said that foreign companies must be aware of the growing threat of expropriation of assets and other punitive actions as a result of an increase in so-called 'resource nationalism', whereby governments of countries rich in natural resources, often in emerging markets, take measures to ensure they receive a bigger share of related profits. According to Mr Van den Born, foreign companies and their risk managers should carefully consider contractual remedies, bilateral treaties and pre-emptive action to help mitigate this growing risk. Political risk insurance that can cover expropriation or acts of confiscation, political violence and areas such as licence cancelations, should then be purchased as a backstop, he added. Energy and extraction companies are most at risk from the threat of resource nationalism, a threat that is expanding across the globe and further afield than the far left Latin American countries historically associated with such practices, he said. "Resource rich countries in emerging markets, but not exclusively, are continuing to flex their muscles as they seek to take a greater share of the proceeds in strategic projects. Extractive industries and those in the energy sectors which usually involve long term concessions or licenses that provide for flat royalty and tax rates are particularly vulnerable to the risk of governmental interference," he pointed out. The broker said the trend is towards 'creeping expropriation', whereby more indirect and insidious forms of government intervention occur. Mr Van den Born expects this type of action to increase in coming years. This can take the form of punitive tax regimes, licence cancellations, import and export embargoes and changes to legislation, that are often applied retroactively and selectively against foreign enterprises. According to Mr Van den Born, over the last two years more than twenty countries across the world have announced plans to increase government share of private profits by imposing increased taxes or royalties from various foreign owned assets or projects. This type of action has spread globally to countries such as Angola, Botswana, Brazil, Indonesia, Mongolia, Peru, Republic of Guinea, Russia, Zambia and South Africa, he said. Angola has adopted a new mining code that will entitle it to at least a 10% interest in all mining firms that operate in the country. Brazil is also proposing a new mining code. Indonesia has announced that foreign ownership of mines must be kept to 49% and a 20% tax on exports of unprocessed metals. In May this year it announced an export ban on processed ore with effect from 2014. Mongolia is now able to exercise an option to increase its share in various foreign-owned entities and projects from 24% to 50%. In South Africa there have been various changes to legislation on the back of the Black Economic Empowerment Act. "Resource nationalism is now a global phenomenon. It is typically in emerging markets because they are the ones that have the natural resource. But it is not the preserve of emerging markets with developed countries also getting in on the act," Mr Van den Born explained. In March, for example, the Australian government passed a mineral resource rent tax that, amongst other things, proposed a 30% tax on iron and copper ore profits above a certain level.

Global confiscation insurance programmes on the rise

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