Cost and Benefits of Political Risk Insurance for Foreign Direct Investments

This white paper was produced by Marsh and S&P Global, members of IPFA. 

By using PRI, equity investors in emerging market projects can insure selected country risks in a manner that increases the internal rate of return on projects. The increased IRR more than covers the insurance premium expense.

The recent paper by S&P Global and Marsh Specialty suggests that many equity investors systematically underestimate the benefits of political risk insurance (PRI) relative to its cost. The paper uses S&P’s methodology to demonstrate this in quantitative terms, which is key to investment professionals and capital budgeting.