Felton (Mac) Johnston, editor of this Newsletter and adviser on political risk and arbitration for robert wray PLLC, is interviewed by Jordan Dansby, the newest member of the firm.
Jordan Dansby: Let’s start with the Political Risk Insurance Newsletter. How did you get the idea to launch it?
Felton (Mac) Johnston: I didn’t. It was the brainchild of Robert Wray, our firm’s founder. He saw a need for a non-scholarly but serious journal dedicated to the subject, and one that drew contributions from PRI professionals and other authoritative sources, not just from ourselves here at the law firm.
JD: How’s it doing?
FMJ: We have close to 1,000 email subscribers, and it probably gets forwarded to many more. We get a fair number of compliments.
JD: The Newsletter seems to evolve in terms of content. What’s in store for the future?
FMJ: We’ve done a bit of experimenting since we first started publishing the Newsletter in 2005. The most significant development to date is that we have incorporated more articles relating to investment disputes and arbitration. Political risk insurance and international arbitration intersect in a lot of ways, so it made sense to do that. Besides, international arbitration is one of our areas of specialization.
As to the future, we’re looking to attract more contributions from experts outside the North Atlantic PRI and investment arbitration arenas. So much has changed in terms of the sources and direction of foreign direct investment, and we want to reflect that. Also, there are many professionals out there with something important to say, and if it’s relevant and authoritative, we want to put it in the Newsletter. I hope our readers are paying attention to this invitation.
JD: Is there anything in particular you’d like to see in terms of contributions?
FMJ: One thing that I think would be of interest to our readers is a good article about PRI portfolio exposure management. And anything good about claims – that’s the hardest thing to get at, other than what comes out of public agencies. Lastly, I’m sure there are aspects of PRI and arbitration that readers would like to see, but that we may not have thought of. We’re open to suggestions, and we also welcome reader comments on the articles. Maybe we’ll start a “Letters to the Editor” page!
JD: Can people get back copies of the Newsletter?
FMJ: Yes, they’re all on our website. Better still, we have an archive index on the website, so that you can look for articles by subject. It’s a pretty rich inventory.
JD: What do you do at the firm when you’re not editing the Newsletter?
FMJ: I’m an adviser to the firm on political risk and arbitration. The work doesn’t follow any particular pattern—mostly claims and arbitration matters, and PRI product improvement and development. My work dovetails into the lawyers’ work here, in PRI, arbitration, and microfinance. And occasionally I do some underwriter training.
JD: That brings us to something else you have done—your Primer on Investment Insurance Underwriting, now on the robert wray PLLC website. Why did you write that one?
FMJ: There didn’t seem to be anything out there like it. I decided to fill that gap. Underwriting investment insurance is something you learn pretty much by doing, but everyone has to start somewhere, hence the Primer.
JD: You’re giving it away?
FMJ: Yes. I think there’s a need for something like this but the audience is still too small to expect to make money out of it. We’ll be glad to provide tailored training for underwriters on a fee basis though!
JD: How did you happen to get into this business?
FMJ: I stumbled into it. I started out to be a banker, which didn’t grab me but was useful preparation. When I was hired at OPIC, I discovered that PRI was intellectually challenging and wide open for innovation. It was at the juncture of international business, economics and politics, which fascinated me. And it brought me into contact with many fine and talented people. How could you not love a business like that?
JD: What do you think about PRI brokers?
FMJ: Some of my best friends are PRI brokers. Really! I think few investors are equipped to deal with PRI without expert advice, and specialist PRI brokers can do them a great deal of good. Brokers perform valuable functions that others can’t or don’t. They have their fingers on the pulse of the marketplace, and they have seen a lot of deals. I emphasize specialist PRI brokers: not everybody who hangs out that shingle is going to do a crack job, and some brokers are better at some PRI products than others. The best way to find the right broker is to ask around, especially of other investors. Now ask me about the role of lawyers and other external advisers on PRI.
JD: OK, what about it?
FMJ: Lawyers and other external advisers can help in other ways. Remember, PRI isn’t going to improve the risks of anybody’s underlying deal, so you need to start thinking about political risk management before you go looking for insurance. That means, among other things, getting help in drafting and reviewing investment agreements and in understanding the risk environment you are stepping into. Beyond that, in complex cases, it’s a good idea to get an expert adviser’s final review of PRI policy wordings to be sure they fit well with those agreements and that environment. And finally, in loss and claims situations you’d better have expert legal counsel.
JD: You’ve been in the PRI business a long time. What are the biggest changes you’ve seen in the field?
FMJ: There have been plenty. Of course there is the proliferation of market players, public and private. One relatively recent development is the emergence of non-honoring coverage as the leading product under the rubric of PRI. Another is the burgeoning of treaties—BITs and MITs—and of arbitrations that proceed from them and from investment contracts between companies and sovereigns. That’s had a big impact on the way foreign direct investment risks are dealt with. I’ve heard people suggest that international arbitration kind of moots the need for PRI. I disagree. Ask yourself this: Would you rather have a paid claim or an expensive ticket to a prolonged arbitration bout with a sovereign, and maybe an award that you can then try to enforce? But I have no problem with arbitration. It’s good for investors and for underwriters too.
JD: What developments would you like to see in the PRI marketplace?
FMJ: I’m keen on product development, better and more coherent policy wordings, and on creativity in the market. I think the envelope already gets pushed a lot, but mostly in the shadows on a case-by-case basis, not so much in boilerplate policy language. Anyway, there’s always room for new things, because new problems and situations keep arising and there are lots of clever underwriters, not to mention aggressive clients and advisers. I’d also like to see more information on claims come to light. I know that’s hard, and there are good reasons for underwriters and policyholders to cherish confidentiality, but claims are what this PRI business is all about. We learn from claims, even those that aren’t valid under the policy, and paid claims validate the product—and the insurer.
JD: Are there any current world events that are particularly interesting from a PRI standpoint or in your opinion likely to generate substantial claims?
FMJ: Fragility within the Euro zone, upheavals in the Middle East, crunch time over Iran—there’s plenty out there to dread, but it isn’t obvious whether and how such events will translate into PRI losses and claims. Surprises could come elsewhere. In this business you learn to expect the unexpected.
JD: What do you do in your free time?
FMJ: I’m always busy with the details of life. I do some pro bono work. Also, I write novels that almost nobody reads and I have a puppy that takes me for long walks and is training me to do his bidding. ■