Political Risk Insurance and Bilateral Investment Treaties: Making the Connection

Although political risk insurance polices and bilateral investment treaties are two of the most effective ways to manage political risks, most professionals in the international investment community do not incorporate either into their risk-reward analysis of cross border projects in emerging markets. Moreover, those investors and their advisers who do consider protections in one risk management do not explore protections provided in the other. The failure to contemplate how either or a combination of both tools can mitigate exposures to political perils often forces companies to make investment decisions based on incomplete information. By considering the different ways in which these tools respond to different loss scenarios, foreign investors and their advisers can establish a clear risk tolerance level and maximize their opportunities for growth in developing countries.