Creating certainty for overseas investment in an uncertain world - SINOSURE’s practice and initiatives
Drawing on recent claims experience, SINOSURE examines the changing political risks facing overseas investors and the scope for closer ECA collaboration to prevent and mitigate losses.
The global investment environment is becoming increasingly uncertain amid mounting geopolitical tensions, resource nationalism, and sovereign debt defaults. Overseas investment projects are beset by multiple pressures – unpredictable risks, uncontrollable losses, and unprotected rights and interests – which have materially weakened investors’ confidence in global expansion. As the main force in mitigating cross-border risks and stabilising investment expectations, ECAs face a profound challenge: how can we create strong foundations for the sound development of overseas investment amid such uncertainty? This article draws on SINOSURE’s experience in overseas investment insurance claims, shares risk management insights, and proposes industry-wide collaboration initiatives.
Characteristics of overseas investment insurance cases
Until 2023, when the situation began to shift fundamentally, SINOSURE’s overseas investment insurance business had remained stable for many years, with both risk probability and loss ratio staying low.
Three major characteristics are now observed in claim cases. First, risks are highly concentrated in regions affected by geopolitical conflicts and in countries facing severe liquidity constraints. Second, capital-intensive projects with long payback cycles in sectors such as mining, power, and transportation have become highly risky. Third, risk severity is pronounced. A small number of claim cases account for the majority of total claims paid.
Evolving risks in overseas investment
According to the claims data of recent years, the political risks faced by enterprises are evolving.
Wars and political disturbances have become increasingly frequent, especially in South Asia and the Middle East. Supply chains, assets, and even personnel of overseas companies may become targets of attacks.
Expropriation risks are rising in resource-rich countries, especially in the mining sector. Some African countries have implemented indirect expropriation against overseas mining projects by means of legislative amendments, high taxes, or groundless investigations.
Foreign exchange restrictions have become prevalent in emerging markets. Many countries in South Asia, Latin America, and Africa have imposed stricter foreign exchange controls. Some countries further require government approval for profit repatriation from mining projects.
Government default risks are rising, particularly in the power sector. In some countries, the state-owned electricity companies have prolonged non-payment of electricity fees and subsequently asked for renegotiation of PPAs with investors, leading to cash flow shortages for projects.
Insights from claims practice
Against a backdrop of increasingly complex global risks, overseas investment insurance should move beyond the traditional ‘claim-and-payout’ mode. This new landscape calls for full-cycle, synergised, and systematic management. From our practice, we have four key takeaways.
First, the timing of ECA intervention is critical. In many cases, early warning signs of risk, such as lasting tensions with local communities or delayed payments by power off-takers, appear before claims are filed. By the time disputes break out, losses mount, and the insured submits a claim, projects find themselves deadlocked, with very limited room for effective risk mitigation.
Secondly, leveraging the strengths of Berne Union members is important. Some host countries believe that expropriation or contractual defaults targeting the individual projects of specific countries have limited impact. Consequently, the actions of a single ECA are insufficient to exert meaningful constraints on them, undermining risk resolution. Coordination among Berne Union members, by contrast, raises the reputational and practical stakes for host countries, making risk resolution far more achievable than unilateral action.
Cross-border coordination and information sharing are also indispensable. In practice, information asymmetry and disparities in judicial systems are pervasive bottlenecks in cross-border risk resolution, severely hampering loss ascertainment and recovery, extending resolution cycles, and increasing costs.
Finally, a stable and predictable international investment order must undergird everything. Many cases arise not from project operations, but from policy fluctuations and deteriorating sovereign credit. The mitigation of such risks must not rely on individual institutions but on the sustained improvement of the international investment environment.
Advancing the collaborative development of ECAs
Shifting risk management upstream: ECAs should move beyond being mere compensators and serve as proactive early warning providers and coordinators. Experience shows that host countries will demonstrate greater respect for investors’ rights once they are aware of an ECA’s involvement. We recommend highlighting ECA backing before or as risks emerge, thereby bolstering the host country’s compliance incentives and expanding the scope for risk prevention and mitigation.
Enhancing the influence of the Berne Union: The Berne Union gives its members influence far beyond what any single entity could wield alone. We recommend leveraging this platform’s strengths by framing bilateral negotiations within a multilateral context. This would help host countries recognise that defaults would harm their overall risk ratings across the industry, raising future financing costs and insurance thresholds.
Establishing information exchange mechanisms: We recommend deepening information sharing among member institutions in the areas of country risk analysis, policy interpretations, sectoral early warnings, insights into host country authorities’ negotiation styles, and best practices in risk assessment and monitoring, as well as claims and recovery.
Strengthening collaboration among Berne Union members: To deepen cooperation between ECAs, multilateral institutions, and private entities, we recommend expanding joint promotional events and seminars to identify project opportunities and develop risk mitigation strategies together, promoting co-insurance and reinsurance arrangements for risk and capacity sharing, and discussing the potential establishment of bilateral meeting mechanisms. These measures will boost the BU’s influence and strengthen risk mitigation and financing support for cross-border projects.
Closer cooperation can help ECAs provide what investors need most: greater predictability, stronger protection, and confidence in overseas markets.
