Investment insurance programs
Investment insurance programs
OPIC's largest program is its investment insurance program that covers against the risks of:
• Inconvertibility of currency-including the inability to transfer local currency into U.S. dollars as a result of lack of foreign exchange or adverse discriminatory exchange rates or laws; it does not protect against devaluation or exchange rate fluctuations
• Expropriation-includes confiscation or nationalization, plus the more difficult situation of dealing with a set of actions whose cumulative effect is to deprive investors of their fundamental rights associated with the investment
• Political violence (e.g., war, revolution, insurrection, civil strife)-includes physical damage to tangible assets as well as lost income resulting from interruption of operations caused by political violence
Insurance premiums are based on two rates —the rate for the current amount selected by the insured or the effective insurance and standby rate insurance that is similar to a commitment for available coverage. This is the unused portion. Together these equal the maximum insured amount or ceiling of coverage between current and standby to reflect the insurance in force for any contract year. Standby is assessed at a lower rate, but is still part of the annual overall cost. Only 90 percent of the total investment can be insured. OPIC will insure retained earnings and interest that might accrue on the insured investment. Typically, this would be for 90 percent of the initial investment plus an additional 180 percent standby commitment for future interest or earnings for a period of as long as 20 years.
Eligibility requirements are that investors must be American citizens, American corporations greater than 50 percent owned by American citizens, or foreign corporations more than 95 percent owned by American citizens. The project itself need not be owned or controlled by American investors, although in this case OPIC would insure only the interests of the American investors in a foreign controlled project without insuring the entire project. The project must be in a consenting country on OPIC's list of developing countries. In the case of eligible countries with a per capita income greater than $3,800, projects might be restricted to those sponsored by small businesses or co-ops; other projects involving minerals, oil, gas, and alternative energy; or offering significant development or trade benefits.
OPIC primarily insures new medium- and long-term investments (3 years or longer), or in some cases, expansion of an existing investment. Take note here of a key provision: To preserve eligibility for OPIC support, the American business must apply for and receive, free of charge, an OPIC registration letter before that business is irrevocably committed to the investment. The foreign investment can take many forms, including contracts for goods and services such as licensing and technical assistance agreements, construction and service contracts, production sharing agreements, and international financial or operating leases. In general, the project or agreement is expected to have a beneficial development effect on the host country and encourage private sector participation. Its effects on American balance of payments and jobs are also considered.
OPIC has special insurance programs to encourage the exploration and development of minerals, oil, and gas, as well as international leases and institutional loans. In 1987 OPIC added the Business Income Coverage (BIC) for political risks in developing countries.
Relative
investment insurance programs exchange rate fluctuations civil strife american investors american corporations insurance premiums political violence american citizens tangible assets rate insurance nationalization insurance program cumulative effect unused portion devaluation fundamental rights initial investment confiscation opic eligibility requirements
OPIC's largest program is its investment insurance program that covers against the risks of:
• Inconvertibility of currency-including the inability to transfer local currency into U.S. dollars as a result of lack of foreign exchange or adverse discriminatory exchange rates or laws; it does not protect against devaluation or exchange rate fluctuations
• Expropriation-includes confiscation or nationalization, plus the more difficult situation of dealing with a set of actions whose cumulative effect is to deprive investors of their fundamental rights associated with the investment
• Political violence (e.g., war, revolution, insurrection, civil strife)-includes physical damage to tangible assets as well as lost income resulting from interruption of operations caused by political violence
Insurance premiums are based on two rates —the rate for the current amount selected by the insured or the effective insurance and standby rate insurance that is similar to a commitment for available coverage. This is the unused portion. Together these equal the maximum insured amount or ceiling of coverage between current and standby to reflect the insurance in force for any contract year. Standby is assessed at a lower rate, but is still part of the annual overall cost. Only 90 percent of the total investment can be insured. OPIC will insure retained earnings and interest that might accrue on the insured investment. Typically, this would be for 90 percent of the initial investment plus an additional 180 percent standby commitment for future interest or earnings for a period of as long as 20 years.
Eligibility requirements are that investors must be American citizens, American corporations greater than 50 percent owned by American citizens, or foreign corporations more than 95 percent owned by American citizens. The project itself need not be owned or controlled by American investors, although in this case OPIC would insure only the interests of the American investors in a foreign controlled project without insuring the entire project. The project must be in a consenting country on OPIC's list of developing countries. In the case of eligible countries with a per capita income greater than $3,800, projects might be restricted to those sponsored by small businesses or co-ops; other projects involving minerals, oil, gas, and alternative energy; or offering significant development or trade benefits.
OPIC primarily insures new medium- and long-term investments (3 years or longer), or in some cases, expansion of an existing investment. Take note here of a key provision: To preserve eligibility for OPIC support, the American business must apply for and receive, free of charge, an OPIC registration letter before that business is irrevocably committed to the investment. The foreign investment can take many forms, including contracts for goods and services such as licensing and technical assistance agreements, construction and service contracts, production sharing agreements, and international financial or operating leases. In general, the project or agreement is expected to have a beneficial development effect on the host country and encourage private sector participation. Its effects on American balance of payments and jobs are also considered.
OPIC has special insurance programs to encourage the exploration and development of minerals, oil, and gas, as well as international leases and institutional loans. In 1987 OPIC added the Business Income Coverage (BIC) for political risks in developing countries.
Relative
investment insurance programs exchange rate fluctuations civil strife american investors american corporations insurance premiums political violence american citizens tangible assets rate insurance nationalization insurance program cumulative effect unused portion devaluation fundamental rights initial investment confiscation opic eligibility requirements
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