Taking cover in Georgia

The on-going conflict between Georgia and Russia has led to a surge in enquiries about the availability of political risk cover for businesses that have operations in the region.

The current dispute began in early August when Georgia embarked on an operation to retake the South Ossetia region, an area of Georgia controlled by pro-Russian separatists.

Russia launched a furious counter-offensive that resulted in heavy fighting. The violence forced an estimated 160,000 people to flee their homes, leaving behind devastated towns and villages.

The fact that the explosion of violence was so sudden has alarmed businesses active in the region, and many are now seeking extra cover – in the form of political risk insurance – to protect their assets.

Political risk insurance provides a number of different types of cover, including breaches of contractual obligations by a foreign government or state-owned organisation, and expropriation – that is, the confiscation of a company’s assets by a foreign government.

The cover will also protect companies against terrorist acts and other forms of “political turmoil”, as well as covering “repossession risks”, which amount to any measures a foreign government takes to prevent a business from repossessing assets that it has brought into the country. Such assets could include machinery, equipment, rolling stock or aircraft.

Businesses seeking cover for these risks have approached underwriters in the Lloyd’s market. Political risk specialist ascot Underwriting has reported that it is receiving more enquiries about the availability of political risk cover as a result of events in South Ossetia – the unpredictable nature of the region’s political situation jeopardises stability in an area that acts as an important hub for the energy industry.

Julian Barker, senior political risk and terrorism underwriter at Ascot Underwriting, said this week: “The recent conflict in Georgia has highlighted how quickly events can alter in this volatile part of the world, a region which is such an important artery for the transit of hydrocarbons.”

He declined to provide further details, simply adding that there had been “increased enquiry activity in the political violence market”.