Safeguarding enterprises’ overseas investments: War and political disturbance risk claims in a tumultuous world

SINOSURE shares practical insights on handling war and political disturbance claims to protect enterprises’ overseas investments during a time of unprecedented change.
Wang Xu
Wang Xu
General Manager, Project Insurance Claims & Recovery, SINOSURE
28/04/2025

The world has entered a new period of turbulence and transformation. The pace of change exceeds anything seen in the past century. As a result, the number of war and political disturbance claims submitted to China Export & Credit Insurance Corporation (SINOSURE) has seen an increase in recent years. As war and political disturbance risk events are usually few and far between, SINOSURE would like to share the key elements of the claims handling process and insights from our experience that will help to better protect the interests of the insured’s overseas investment.

Determining the war and political disturbance risk

Firstly, we need to determine whether the claim was covered by the Overseas Investment Insurance Policy. According to SINOSURE’s insurance policy, war and political disturbance means any war (whether declared or not), revolution, riot, coup d’état, civil war, insurrection, terrorist activity, or political disturbance involving the Host Country (excluding activities merely to further employment, education, or for other non-political purposes).

For the threatening loss submitted by the insured, SINOSURE’s investigation generally focuses on the following aspects:

(i) Collect local mainstream media reports on the incident, paying attention to whether the reports link the risk event to political figures or political purposes.

(ii) Check the risk alerts issued by the Chinese Embassy in the host country, and assess whether the types of risk mentioned fall under political risks.

(iii) Engage local investigative agencies to conduct site visits of the enterprise implementing the investment project (hereinafter referred to as ‘project enterprise’) locally and neighbouring enterprises to determine whether the project enterprise has been affected by political risks.

Insurers must distinguish between political disturbance risk and public security incident risk (e.g., theft and robbery of the project enterprise’s property and labour strikes). There are some similarities between the two, such as the involvement of violent actions and property damage to enterprises. Further, in SINOSURE’s experience, sometimes a small-scale public security incident can escalate to the level of political disturbance. To comprehend the differences between the former and the latter, we advise performing a thorough check on several key aspects of the risk event. Firstly, its seriousness: political disturbances are typically larger in scale, higher in intensity, and broader in scope compared to public security incidents. Secondly, the motives behind the event: the core difference is that political disturbances are generally driven by political motives or demands, whereas public security incidents lack such explicit political objectives.

Assessment of losses caused by war and political disturbance

For overseas equity investments made by Chinese enterprises, the losses covered by SINOSURE include the following three types:

  • Damage, destruction or disappearance of assets (excluding precious metals, gems, works of art, money, documents or goodwill); the aforementioned assets must be located at the site of the insured investment and directly related to the operation of the Insured Investment;
  • Inability of normal operation, which means any war or political turmoil disrupts the normal operation of the project enterprise, excluding damage, destruction or disappearance of assets. If disruption of operation escalates to permanent inability of operation, it shall be handled as permanent inability to operation.

(iii) Permanent inability of operation, which means the project enterprise totally loses the ability to conduct operations as a result of war or political disturbance and is unable to resume operation.

For damage, destruction, or disappearance of assets, the amount of loss shall be the insured’s share of the value of the asset which has been damaged or disappeared. The value of the asset shall be determined as the lowest of book value, repair cost, or replacement cost of such an asset.

SINOSURE generally requires the insured to provide audited financial reports and engage a third party auditing organisation to review the audit report.

For certain assets, such as customised production machines, where there is no book value available for reference, the loss amount shall be determined by repair value or replacement value. For reported assets loss, in addition to the audited financial statements, the insurer should also notify the insured to prepare relevant purchase vouchers for cross verification.

For loss caused by inability of operation, the amount of loss is the insured’s share of the reduction in the carrying value of total equity of the project enterprise due to inability of normal operation.

The losses reported by the insured typically include asset depreciation, rental maintenance costs, staff wages, and evaluation costs due to war and political disturbance during the inability of operation period, etc. SINOSURE generally requires the insured to arrange an audit of the loss and engage a third-party auditing organisation to review the audit report.

Significantly, the amount of loss is the “reduction in the carrying value of the owner’s equity of the project enterprise”, rather than the “portion where the carrying value of the owner’s equity of the project enterprise failed to increase”. Therefore, SINOSURE’s risk coverage is limited to the necessary and reasonable expenses incurred by the insured due to war and political disturbance, rather than the insured’s unrealised gross profit.

The burden of proof

In principle, the insured is required to provide audited financial statements on the loss, and the result of the statements will be reviewed by SINOSURE during the claim determination period. If the insured is a small- or medium-sized enterprise and, for cost reasons, is genuinely unable to provide audited financial statements, SINOSURE can undertake the auditing work and appoint an auditing organisation to audit the loss of the project enterprise together with the insured.

Case study

Let us consider a claim handled by SINOSURE as an example. In a manufacturing project in Country A, the insured reported that the project enterprise suspended operations due to large-scale riots in the local area. The insured then filed a claim under the war and political disturbance clause of the policy.

After engaging local investigative agencies to conduct inquiries, SINOSURE obtained the following findings:

(i) Nature of the event: The riots were triggered by the imprisonment of the country’s former president. Local mainstream media named the event after the former president’s name, indicating political characteristics.

(ii) Impact of the event: While the riots involved public security issues such as theft and robbery, their overall impact was widespread, affecting most areas of several major cities across the country. This scope far exceeded that of typical public security incidents.

(iii) Reaction to the event: The insured’s shutdown of the project enterprise was consistent with other local businesses’ actions.

Based on the above, SINOSURE determined that the event constituted political disturbance.

In terms of loss assessment, the insured claimed that the loss should be calculated based on the unrealised gross profit during the ‘inability to continue normal operation’ period. However, SINOSURE maintained that the loss should be determined based on the staff wages and operating costs (utilities, factory expense) incurred during that period. Ultimately, the two parties conducted an audit of the loss in line with the method proposed by SINOSURE, and upon the results of which SINOSURE subsequently made compensation.

In a world increasingly shaped by uncertainty and change, a clear-eyed and thorough approach to claims handling will prove vital to protecting enterprises’ overseas investments.

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