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. Last Updated: 07/27/2016

Russia Seeks Risk Insurance

When the Communists took power in 1917, French investors lost millions of francs owed by the czarist government. Some of the French investors are still trying to get their money back.


As the French say, "Plus ca change". It appears that things have not changed that much.


The Russian government, concerned that Russia's political uncertainty is scaring away foreign investors, said this week it was looking for outside help to give some credibility to a plan to insure Western businesses against political risk.


In other words, the government is seeking to sell insurance against itself.


The scheme was first proposed in February when President Boris Yeltsin signed a decree to start a state Fund for Insurance Against Non-Commercial Risk, with capital as high as $1 billion.


In this case, "non-commercial risk" is a euphemism for a return to communism or civil war.


The problem is that if a future government decides to seize Westerner's property, it is highly unlikely that it will then allow the insurance fund that it controls to pay out claims.


The remedy the Russian government has decided on is to enter into a partnership with a Western insurance company, leaving the fund overseas and, thus, out of reach of any future Russian government.


The director of the Russian State Investment Corporation, Yury Petrov, said in Washington on Wednesday that he had discussed the proposal with American International Group of New York, one of the world's biggest insurance companies, Reuters reported.


Ivan Klementyev, director of the state insurance company, Ingostrach, and a member of the organizing committee for the fund, said Thursday that AIG is only one of several international insurance companies that have been approached. "The whole point of the fund is that it must be set up in a different country", he said.


Insurance experts say that as politicians fire off threats about civil war, businesses have become jittery and are looking for political-risk insurance.


Yevgeny Laryonov, senior Moscow representative for the British insurance broker Sedgwick Russia said, "If any reliable company were offering political insurance, we would get plenty of applications".


He said that private insurers like Lloyds of London used to offer political-risk insurance, but this has dried up, especially since problems emerged with Russia's payments on the debts of the former Soviet Union.


At this month's Clinton-Yeltsin summit in Vancouver the U. S. oil firm Conoco Inc. took advantage of warm feelings between the superpowers and gained a political-risk insurance package worth $100 million through the Overseas Private Investment Corp. , a U. S. government trade agency.


Steve Goff, financial coordinator, said the insurance covered Conoco against losses caused by "expropriation, nationalization, war and civil disturbance" to its oil mining venture inside the Russian Arctic Circle.