Non-Payment by Government Entities
Political Risk Insurance
Contract Frustration / Sovereign Non-Honoring of Payment Obligations
Exporters, contractors and financial institutions doing business with foreign governments are exposed to the risk of non-payment for goods delivered, services rendered or funds borrowed.
Contract Frustration coverage, also referred to as Sovereign Non-Honoring coverage, is a form of Political Risk Insurance that responds in the event a foreign government, or government-owned enterprise, fails to make payment or honor a guarantee in connection with a contract.
Coverage is typically available for policy periods of up to 10 years at 95% – 100% indemnity. Limits of liability can total as high as $250MM per insurer for any single risk.
How is the product used?
The coverage protects exporters, contractors and financial institutions with debts owed by sovereign and sub-sovereign entities including central governments, state-owned enterprises, government agencies and ministries.
Various structures where a government body is the obligor can be covered. Examples of product usages include:
- Financial institution lending money to or confirming a letter of credit issued by a government-owned foreign bank.
- Manufacturer of farming equipment selling to a ministry of agriculture on multiple-year payment terms. The payment obligation may or may not carry the guarantee of the foreign ministry of finance.
- Engineering and construction firm performing services for a government-owned project company with milestone payments to be made in arrears. Construction firm may also opt to insure bid, advance payment and performance bonds against unfair calling by the government-owned project company.