Bermuda-based political risk insurer, Sovereign Risk Insurance Ltd., has exceeded its business targets for the first year.

And the joint venture has begun its second year of life with substantially larger project and country limits, as well as expanded coverage lines.

Sovereign is doubling its per-project capacity limit to $100 million. Its country limits will increase to $250 million.

Sovereign Risk president and CEO Price Lowenstein said, "There clearly is more demand for higher limits, due primarily to the large sums involved. These infrastructure projects are priced in the hundreds of millions of dollars.

We're optimistic about the state of the market.'' Clients include banks that do project financing, such as building power plants or pipelines in Brazil and large multi-nationals. The investment projects include building programmes for power generation, telecoms and oil and energy in emerging markets like Latin America and Eastern Europe. Sovereign Risk is competing with four other major political risk insurers in the private sector, and entered the market with an alternative method of writing the business. The firm already has potential exposure in 44 countries.

Mr. Lowenstein said, "A lot of that is as a result of worldwide programmes where a single company has worldwide operations. The most significantly represented countries include Brazil, China, Russia and Chile.'' He said, "We are extremely pleased by the successful results of our first year of operations and are off to a great start in our second year.

"Sovereign's higher limits and expanded coverage lines provide us with much greater underwriting capacity and flexibility to more effectively respond to the specific coverage needs of our clients.'' Sovereign Risk has also expanded its line of political risk products to include Contract Frustration insurance, the next logical step in Sovereign Risk's product evolution.

That involves the repudiation of a contract, usually an investment agreement, due to political events in a country.

"For example,'' said Mr. Price, "a US party is trying to build a power plant in an emerging country, but its government decides it is out of foreign exchange and implements currency restrictions on the power plant, which forces the abrogation of the contract to remit dollars back to the states.

"It's a small variation from investment insurance, which is our main line of business, where we cover, for example, a power plant in a country against it being expropriated or being burnt down in a riot, a war happening or a currency blockage. It also includes things like the non-honouring of government guarantees.'' Sovereign, which began its second year on July 1, was formed as a joint venture between ACE Ltd. and EXEL Ltd. (each with about a 40 percent stake), together with minority partner, Risk Capital Holdings, to write political risk on behalf of ACE and EXEL.

The managing general agency provides underwriting services to the three organisations for political risk insurance coverage.

The move was in response to increasing foreign direct investment, particularly projects in developing countries, and a rising demand for political risk cover.

It insures businesses with operations abroad against losses from political upheavals including war, revolution, confiscation and incontrovertibility of currency.

Sovereign initially offered limits up to $50 million per project and $100 million per country. Per country limits are expected to increase to $500 million by Sovereign's fifth year of operation.

Price Lowenstein