Captive insurance companies, on the other hand, can be a simpler, more effective strategy for transferring political perils. They're particularly useful for Fortune 500-size companies that have already set up well-capitalized captives to insure a variety of exposures, say risk management experts.
That would yield a broad enough spread of risk to buffer the volatility of political risk exposures. Indeed, the unpredictability and downright scary potential of political risks has long held back companies from using their captives to fund the exposures. "Because political losses tend to be low frequency and high severity, many captives don't usually want to expose their own balance sheets to catastrophic losses," explains Horne.
Still, in times like these, subjecting a captive to some exposure might be a better alternative for a corporation than to find itself out in the cold, bare of coverage.
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