Political risk insurance: what it covers and who needs it

Political risk insurance (PRI) protects a business from losses caused by the actions of a foreign government or by political violence abroad: expropriation of assets, inability to convert or transfer currency, a government's breach of its contract, or war and civil unrest that damages property. It is aimed at companies that invest, lend, build or sell in emerging and higher-risk markets, and it is bought mostly by investors, lenders and large contractors, not by domestic small businesses. The standard commercial property, general liability and credit policies a U.S. company already carries do not respond to these losses.

What it covers

PRI is sold as a menu of risks. A policy lists the ones you choose, the country or countries, and the assets or contracts covered.

Marsh's product description lists political violence, expropriation (including blocking creditors from repossessing collateral), currency inconvertibility, arbitration award default and sovereign non-payment among the covered risks. A December 2025 interview with a HUB International specialist, reported by Insurance Business, said policies are expanding to contract frustration, denial of justice and arbitral award default, and that insurers are writing endorsements for "grey zone" losses that fall short of outright seizure.

The policy pays when government action (or political violence) causes the loss. It does not pay for ordinary commercial failure: a customer going bankrupt, a market turning down or a project that simply underperforms. That boundary separates PRI from trade credit insurance: protecting receivables from customer default, which covers buyer insolvency and non-payment, though some programs combine the two.

Who writes it

Private market. Lloyd's syndicates and specialty insurers write PRI, usually on a surplus lines or non-admitted basis for U.S. buyers. See How Lloyd's of London works: syndicates, brokers and what it means for you and excess and surplus lines insurance explained. WTW's political risk outlook for 2026, published in October 2025, described the market as hard but flexible, and capacity varies widely by country. HUB's specialist said capacity has grown steadily with demand, though insurers limit concentration by country or sector and can pull back from a jurisdiction even when the underlying risk has not changed.

Government and multilateral providers.

• DFC. The U.S. International Development Finance Corporation offers political risk insurance against currency inconvertibility, expropriation and political violence including war and terrorism, under the BUILD Act, per its FY 2025 annual management report. DFC announced on December 18, 2025 that the FY2026 defense authorization act reauthorized it for six years, through December 31, 2031, and set its maximum contingent liability at $205 billion. Its programs target eligible overseas investments, and DFC's own eligibility checklist determines whether a project qualifies.
• MIGA. The Multilateral Investment Guarantee Agency, part of the World Bank Group, issues guarantees against currency inconvertibility and transfer restriction, breach of contract, war and civil disturbance, expropriation and non-honoring of public debt. MIGA's published guidance says guarantees run up to 15 years and occasionally 20, and that eligible investors are generally nationals or companies of member countries investing in a developing member country other than their own. MIGA's site reports $25 billion in guarantees issued in fiscal 2026.

DFC and MIGA do not compete with the private market so much as fill the long tenors and difficult countries that private insurers avoid. Some deals use both.

Who needs it

• Equity investors and foreign subsidiaries. A U.S. manufacturer with a plant overseas, a minority stake in a joint venture or a mine concession.
• Lenders. Banks and funds that finance projects or trade in higher-risk countries use PRI to protect the loan.
• Contractors and equipment suppliers. Firms with equipment in a foreign project, or a contract with a foreign state buyer.
• Exporters. Particularly with sales to government entities where the buyer's own law may prevent payment.
• Commodity traders. Cargo and receivables exposed to export or import bans.

A company that only exports to private buyers in stable markets generally buys trade credit and cargo cover instead (ocean marine and cargo insurance: how shipment and vessel coverage works).

How it differs from other policies

• War and terrorism in property policies. A standard property policy contains a war exclusion and limits terrorism coverage. In the United States, certified acts of terrorism are handled under the Terrorism Risk Insurance Act backstop, but that program generally does not reach property abroad. PRI or a standalone political violence policy fills that gap. See Terrorism insurance and TRIA: how the federal backstop works.
• Sanctions. Insurers cannot pay a claim that would breach sanctions, and a policy may have a sanctions clause that suspends coverage where cover or payment would be unlawful. See sanctions clauses in insurance policies.
• Contingent business interruption. If a foreign supplier's plant is damaged by political violence, the loss may sit in a contingent business interruption policy only if political violence is covered. See supply chain risk and insurance: what is covered and what is not.

Buying it

1. Define the exposure. Which assets, contracts or loans, in which countries, at what values, for what period.
2. Pick the risks. Expropriation and inconvertibility are the usual starting point. Add political violence for physical assets and contract frustration where a government is your counterparty.
3. Brief a specialist broker. The submission covers the investment structure, host-country laws, the contracts, local partners, your history with the government and sanctions and compliance. These are bespoke placements that can take months to set up.
4. Understand the waiting periods and conditions. Claims typically follow a waiting period after the government act, and policies usually require you to avoid actions that increase the risk, often keep the policy confidential from the host government, mitigate loss and cooperate with recovery. Commercial default by a private counterparty is not covered.
5. Expect subrogation. After paying, the insurer steps into your shoes against the host government (subrogation), so a settlement or waiver you sign can affect your cover.

Worked example (hypothetical)

Say a Wisconsin machinery company has a $30 million assembly plant in a developing country. It buys a five-year policy with $20 million of expropriation and inconvertibility cover and a $5 million political violence limit. In year three, a new government cancels the plant's operating license and orders the assets transferred to a state company. The insured notifies the insurer, waits out the policy's waiting period and, assuming the cause qualifies and no exclusion applies, receives a payment up to the covered value with the insurer taking over its rights against the host state. If the plant is later closed because of low demand, the policy does not pay. The values are invented.

Market conditions in 2026

Conditions for the war and political violence segment shifted sharply in 2026. Business Insurance reported on September 2, 2026, citing Marsh Re, that Middle East war, terrorism and political violence losses were estimated to exceed $2 billion in 2026 against about $2.5 billion of annual gross premium, possibly making 2026 the class's first loss-making year. Ask your broker how the Middle East conflict has changed per-risk limits, pricing and exclusions for the countries you care about, and do not assume last year's terms will renew unchanged.

Key takeaways

• PRI covers expropriation, currency inconvertibility, political violence, contract frustration and sovereign non-payment abroad, none of which standard business policies cover.
• Providers include private insurers and Lloyd's, DFC and MIGA, and the right mix depends on country, tenor and size.
• It excludes ordinary commercial loss and sanctions-related loss. Waiting periods, confidentiality and subrogation conditions shape what a claim looks like.
• Specialist brokers build the submission; start months before the investment closes.