2025 UNCTAD Report highlights political risk insurance for derisking international investments
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In April 2025, the United Nations Conference on Trade and Development ("UNCTAD") published a report examining the role of political risk insurance ("PRI"), concluding its critical and growing function in facilitating foreign direct investment to achieve sustainable development.
The 2025 UNCTAD Report, Derisking Investment for Sustainable Development Goals: The Role of Political Risk Insurance,1 has been released amidst ongoing geopolitical instability that continues to challenge international businesses (the "Report"). Trade and investment uncertainties have impacted international investments. Unpredictable policies, supply chain risks and conflict-prone trade routes have been calculated to cost organizations an estimated USD 184 billion annually.2 In response to these shifting global risk patterns, private investors must consider how to best protect their investments from political and sovereign risks. Among the tools available is PRI.
The 2025 UNCTAD Report
The Report highlights a significant increase in the investment gap needed to achieve the United Nation's Sustainable Development Goals ("SDGs") in developing countries by 2030. This gap has widened from USD 2.5 trillion to approximately USD 4 trillion per year between 2014 and 2023. The Report stresses that public resources, including official development assistance, will be insufficient to bridge this gap, underscoring the urgent need for effective solutions.
Mobilizing private sector finance, particularly foreign direct investment ("FDI"), is thus vital. However, private investment in developing countries, especially in Least Developed Countries ("LDCs"), is hindered by heightened real and perceived risks. According to the Report from 2015 to 2023, FDI flows grew modestly by 17% in developing countries but declined by nearly 20% in LDCs.
The Report identifies PRI as a critical tool in facilitating FDI inflows to vulnerable countries, thereby aiding sustainable development and the achievement of the SDGs.
Understanding Political Risk Insurance
PRI helps protect investments abroad from risks associated with political and governmental actions, such as expropriations, currency restrictions, political violence and failures by States to honor contractual or legal obligations.
PRI is provided by multilateral investment agencies (e.g., the World Bank's Multilateral Investment Guarantee Agency ("MIGA") and the European Bank for Reconstruction and Development ("EBRD")), export credit agencies (e.g., China's SINOSURE and the US' DFC), as well as private insurers.
Export credit agencies are the primary providers of PRI, accounting for 78% of total issuance over the past decade, while multilateral institutions and private insurers account for 7% and 15% respectively.3
Given the risks covered by PRI, it can play a crucial role in derisking investments in jurisdictions where actual or perceived political instability may otherwise deter capital investment.
The impact of PRI is sizeable. Between 2018 and 2022, PRI insured approximately USD 150 billion worth of projects in developing countries,4 boosting FDI in sectors like manufacturing, infrastructure, natural resources and energy.5 This figure is particularly significant when compared to the USD 228 billion in private finance mobilized for investment in developing countries over the same period.6
What does PRI cover?
The insurability of political risks largely depends on the coverage offered by insurers and the nature and location of the particular investment. PRI typically provides protection against:7
- Expropriation: Governmental actions that result in the loss of ownership or control over investments.
- Political violence: Losses due to war, civil unrest, terrorism or other forms of political violence.
- Currency inconvertibility and transfer restrictions: Inability to convert local currency into foreign currency or transfer funds out of the host country.
- Breach of contract: Host government's breach or repudiation of contracts with the investor, especially when the investor has no access to a suitable legal remedy.
- License cancellations: Revocation or non-renewal of essential licenses by the host government without proper cause.
As such, PRI insurance does not typically cover economic or commercial risks, such as changes in market conditions that may impact on the profitability of the investment, or risks related to the day-to-day operations of the business, such as management issues, or labor disputes.
With an increasingly complex and uncertain trade landscape, the application of PRI is changing. For example, some PRI providers have started to extend coverage to a non-traditional range of risks, including climate-related risks, such as natural hazards and force majeure, in response to growing concerns regarding such risks.8
PRI Disputes
Decisions on disputes under PRI policies are rarely public, as those disputes are typically resolved through confidential arbitration.
However, a recent decision by the High Court in London provides a notable example of a dispute concerning PRI coverage. In June 2025, the court held that PRI insurers were required to cover losses under a "war risks" policy for planes that had been stranded in Russia following its invasion of Ukraine in 2022.9 With the ruling, the fleet of commercial aircraft owners were entitled to recover more than USD 1 billion under their policies. The decision addressed key issues related to the scope of coverage, causation, the effects of U.S. and EU sanctions and other matters of quantum and subrogation.
PRI and International Investment Agreements
In addition to PRI, international investment agreements ("IIAs"), such as Bilateral Investment Treaties, Free Trade Agreements and Regional or Multilateral Investment Agreements, also aim to promote foreign investment by protecting foreign investors against host country interventions.
While PRI and IIAs can overlap and complement one another, they differ in key ways:
- Scope: PRI covers specific political risks, and coverage is defined and limited to the agreed terms in the policy. IIAs, conversely, provide broader protections under international law and general investment standards, covering fair and equitable treatment, protection against expropriation, national treatment and full protection and security, for example.
- Enforcement and remedies: Under PRI, investors file a claim with the insurer, who is obligated to pay if the claim falls within the policy's scope of coverage. In this way, enforcing PRI claims can be simpler, but will often be subject to ceilings and percentage risk-sharing provisions that can result in a significant portion of the investor's loss being borne by the investor. Under IIAs, investors typically seek recourse through international arbitration, as well as later seeking recognition and enforcement of the arbitral awards in national courts.
- Process and costs: Investors pay insurance premiums for PRI coverage and claims are processed according to the insurance contract. Therefore, where there is no dispute as to the application of the PRI policy, payment can be faster and more streamlined. Recourse through arbitration for IIAs can involve multiple stages, including filing a notice of dispute, selecting arbitrators and conducting hearings, which have cost and time implications.
Thus, while both PRI and IIAs serve to protect foreign investments, they do so through different mechanisms and frameworks. Together, they can offer complementary legal and financial mechanisms: PRI can help investors manage short-term and immediate political risks, while IIAs can provide long-term legal stability and predictability, encouraging sustained investment by ensuring that the host State adheres to international investment standards over time.
Nikhil Banerjee (White & Case, Trainee, Paris) contributed to the development of this publication.
1 UNCTAD, Derisking Investment for the Sustainable Development Goals: The Role of Political Risk Insurance, April 24, 2025, available at: https://unctad.org/publication/derisking-investment-sdgs-role-political-risk-insurance.
2 J.S. Held, Global Supply Chain Disruptions and Risks Intensify: 2025 J.S. Held Global Risk Report Highlights Key Challenges, June 2025, available at: https://www.jsheld.com/about-us/news/global-supply-chain-disruptions-and-risks-intensify-2025-j-s-held-global-risk-report-highlights-key-challenges.
3 UNCTAD, Derisking Investment for the Sustainable Development Goals: The Role of Political Risk Insurance, April 24, 2025, p. viii.
4 UNCTAD, Derisking Investment for the Sustainable Development Goals: The Role of Political Risk Insurance, April 24, 2025, p. 9.
5 UNCTAD, FDI derisking: Political risk insurance, Investment Policy Monitor No.30, February 2025, p. 1, available at: https://unctad.org/publication/fdi-derisking-political-risk-insurance.
6 UNCTAD, Derisking Investment for the Sustainable Development Goals: The Role of Political Risk Insurance, April 24, 2025, p. 9.
7 UNCTAD, Derisking Investment for the Sustainable Development Goals: The Role of Political Risk Insurance, April 24, 2025, p. 9.
8 UNCTAD, Derisking Investment for the Sustainable Development Goals: The Role of Political Risk Insurance, April 24, 2025, p. 23.
9 Russian Aircraft Lessor Policy Claims [2025] EWHC 1430 (Comm), available at: https://www.judiciary.uk/judgments/russian-aircraft-lessor-policy-claims/.
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