Bermuda-based Sovereign Risk Insurance Ltd. announced the launch of its “Real Exchange Rate Liquidity (REX) product,” designed to “partially mitigate the risks that large currency devaluations will impair an infrastructure project’s ability to make debt service repayments.”
Sovereign, a joint venture between the island’s two largest insurers, ACE Ltd. and XL Capital, specializes in providing political risk insurance and reinsurance to financial institutions, national export credit agencies, multilateral development agencies and global equity investors in developing countries.
“REX coverage is designed for projects that are located in certain emerging markets and have dollar denominated debt with local currency revenues indexed to inflation,” said the announcement. “The REX coverage is triggered if inflation-adjusted exchange rates move beyond a pre-determined band and as a consequence make it impossible for a project to meet its debt service requirements.”
Price Lowenstein, Sovereign’s CEO, called REX “the most significant new product development in the private political risk market in recent memory.
Sovereign’s expertise has been much in demand. Last week it announced that it had teamed up with XL Capital Assurance Inc. to offer a combined political risk/commercial protection policy to Sweden’s governmental export credit guarantee agency covering defaults on a Mexican utility development project.
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