1. I NTERNATIONAL I NVESTMENT L AW - 7 Political Risk Insurance Prof. Dr. Werner Meng - Europa Institut - Saarland University1

2. Foreign Investment Risks Economic Risks – Insured by private Insurances Political Risks – Expropriation (direct or indirect), currency exchange restrictions, political violence (war and civil strife), non- performance exercising sovereign powers As contractually agreed – Insured by Investment Guarantee Institutions State institutions (e.g. OPIC, USA) – long term Private companies financed and guided by the states (e.g. Hermes and PWC, Germany) – shorter term Independant private insurances (Lloyds, AIG) – id. – Often co-insurance and re-insurance » Diversification of risk

3. Prof. Dr. Werner Meng - Europa Institut - Saarland University3 Increasing exports as a source of national income of the home country – Creating and preserving jobs – Increasing the demand for domestic goods and services from the host state – Balance between risks and profits Fostering the economic development of the host country – Filling in the lack of domestic resources – Jobs, technology, other know how – Value added to the economy of the host state even if the profit of the investor would be entirely repatriated. Reasons of investment guarantees

4. (c) Prof. Dr. Werner Meng4 In the Federal Republic of Germany – At the end of 2009, 24,3 billion € (in 1960: 5,1 Mia. €) – In total, 56 billion € for projects in 123 countries Damages 156,2 Mia. €, but the balance is positive – Guarantees only if there is a BIT – mandated companies distributing funds of the state PricewaterhouseCoopers AG Euler Hermes Kreditversicherungs AG – Since 1960, on the basis of decisions by the Interministerial Committee for Investment Guarantees This committee analyzes if projects are worth promoting and the legal protection situation, six meetings per year – Europe and Africa increasing, America and Asia decreasing Monthly report of BMWiT (Federal Ministry for Economics and Technology), 07-2010 Promotion of Investments by Investment Guarantees

5. (c) Prof. Dr. Werner Meng5 MIGA (1985) – MIGA Members and investors from Member States provided they are not nationals of the host country (article 13 – for direct investments, equity interests and loans (article 12) – Guarantees for non-commercial risks – transfer risk (capital transfer) – expropriation risk – breach of contract risk – risk of war and civil war – against a risk premium – Conditionality: Economic soundness, political ramifications good governance, Host country approval MIGA of the World Bank

6. If the insurance pays The claim of the investor is subrogated to the insurance – Mostly already provided for in the BITs – Otherwise in the investment contract Procedure available – National remedies in the host state – State-State arbitration – Investor-State arbitration? No, if the subrogation goes to the state. Why? Yes for a private insurance company – If out it's not just a proxy for the home state