Feb 26 (The following statement was released by the rating agency)
Political Risk Insurance (PRI) for capital markets
has reemerged with broader scopes of coverage to adapt to the changing needs of
emerging markets (EM) finance, according to a new special report by Fitch
"New PRI products that cover not only political risk but also certain credit
risks typically related to a sovereign obligation could help select EM issuers
to access international capital markets," says Cinthya Ortega, Director in
Fitch's Latin America Structured Finance group.
Fitch rated the first ever debt security supported by PRI in 1999 and has
continued to rate PRI transactions benefiting from various forms of coverage.
The most recent capital markets application was the Multilateral Investment
Guarantee Agency's (MIGA) coverage benefiting the class A1 notes issued by
Maexim Secured Funding Limited in 2013.
Traditional PRI primarily protected private companies against government-imposed
transfer and convertibility (T&C) restrictions. More importantly, PRI policies
traditionally have not covered credit risk. Therefore, if the underlying obligor
does not have sufficient resources to make the local currency payment, the
insurance cannot be utilized.
In recent years, leading providers such as the Overseas Private Investment
Corporation (OPIC) and MIGA have introduced insurance products for capital
markets usage that cover certain credit events including non-payment of an
arbitral award and non-honoring of financial obligations (NHFO).
Unlike traditional PRI, the determination of claim under a new policy that
covers non-payment of an arbitral award is binary in nature, meaning a burden of
proof can be fulfilled through a simple "yes" or "no" answer. New NHFO products
bear a resemblance to financial guarantees, although limited exclusions do
These newer products normally relate to a sovereign guarantee or obligation and
therefore do not address private sector companies in the absence of a sovereign