Mortgage Rights Insurance (MRI) the Political Risks Insurance for Ship Mortgagees

Due to the international nature of the shipping business, lenders are frequently asked to become involved in projects or proposals which are seen as attractive for reasons other than their exposure to country risk.

As with other ventures that feature politically unstable, over-indebted or under-developed countries with unfavourable legal systems, the insurance markets will assist ship financiers by providing country risk transfer by way of a class of coverage for ship lenders known as Mortgage Rights Insurance (MRI).

MRI is required coverage if a bank considers that there may be a risk of a foreign government acting against their legitimate interests. This may either occur through government action against the vessel by way of confiscation etc or following a default under the loan agreement where after the bank seeks to repossess the vessel(s).

A common misconception is that an owners war policy adequately provides Mortgagees with the country risk coverage required.

Considerations when buying MRI

1. Price
This varies depending on country, transaction specifics, availability of Underwriting capacity and market appetite.

2. Coverage in brief
Covers the legal title and rights of a mortgagee on the asset insured. Such rights include foreclosure of the mortgage upon a breach of the terms of the loan and the right to recover the court sale proceeds net of court costs and legal fees, but subject to the provisions of a legal opinion of the country insured.

There are a few specialist brokers and Underwriters who understand this coverage. Experienced brokers will be better placed to ensure the widest available cover is arranged.

3. Underwriters
Underwriters vary in their level of experience, their attitude towards valid claims, the rating of their underwriting security and their willingness to provide best possible terms. Again, obtaining proper advice from experienced brokers is essential.

4. Provision of underwriting information
Prior to binding cover Underwriters will wish to see and agree the loan documents, a legal opinion from a lawyer in the foreign country and a signed proposal form.