During the time that Sovereign Risk has been in operation ? the company was set up as a joint venture between ACE Limited and XL Capital in 1997 ? lawyer Barker Keith said four claims had had to be paid out. And the bulk ? three out of four ? came from insureds doing business in Argentina.

The first of those was paid in the case of CalEnergy (now MidAmerican Energy Holdings), an equity sponsor in two geothermal power projects in Indonesia.

The loss was said to have occurred as a result of a series of actions by the Indonesian government to deny the insured its right to own and operate the power plants.

Although confidentiality agreements barred Mr. Keith from saying exactly how much was paid out in the Indonesian claim, he did allow that claims were in the millions of dollars.

He said that level of payout was to be expected in a business that sees a low frequency of claims, but that when claims are made they tend to be significant, or in the millions of dollars.

In regards to the three claims in Argentina, Mr. Keith said each were paid out for different reasons.

The first paid was a currency inconvertibility claim on a syndicated loan made by a commercial bank to a large Argentine corporate.

The claim was paid after a scheduled payment came due on a loan for which the borrower had sufficient local currency to pay, but because of exchange controls, the company was unable to convert pesos into dollars and remit the payment outside the country.

The Argentine corporate was barred from converting the currency and sending the funds overseas after Argentina had an economic collapse, culminating in its default of $155 billion in foreign debt payments, the largest such default in history.

Subsequently, in 2002 then president Eduardo Duhalde announced an economic plan devaluing the Argentine peso which had been pegged to the dollar for a decade, as well as there being exchange controls put in place.

The devaluation plunged the banking industry into crisis and wiped out much of the savings of the middle class, and although permission for cross-border transfers ( to pay debt) could be sought from the Central Bank, few such approvals were given in 2002 and early 2003.

In this particular case, Sovereign had actually insured two commercial lenders. One filed a claim and another proposed a restructuring of the loan.

Although some were helped by a Berne Union exemption, which stated that lenders insured by a member of the Berne Union (which Sovereign is) did not have to get prior approval from the Central Bank to convert and transfer funds, the loss had taken place before that exemption was put in place.

At present, the Berne Union has 52 members from 43 countries and locations.

Its purpose is to work for international acceptance of accepted principles of export credit insurance and foreign investment insurance.

With extensive international contacts, the Union is able to speak for its members both with international financial institutions and with individual buying countries.

Sovereign said it paid the claim in full at the end of a set waiting period and took a beneficial interest in the insured?s interest in the loan ? rather than taking title to ?blocked pesos?.

Sovereign, some two years after its claim payment, through the insured, was able to realise a full claim recovery.

In the second Argentinean claim, Sovereign paid an ?expropriation of funds? claim to an American corporation that had dollars on deposit in two banks in Argentina.

Those accounts were frozen and devalued at the beginning of the Argentine crisis. Although paying out a claim, not all was lost.

Sovereign took a beneficial interest in the certificates of deposit, meaning that once the freeze was lifted, it was able to convert the pesos to dollars and make a cross-border transfer. But the company did only realise partial recovery of the amount paid out in the claim because of the exchange rate differential.

In the third case, Sovereign paid a ?contract frustration? claim where the insured had a loan to a sub-sovereign entity. In that case, the devaluation of the peso resulted in the borrower being unable to make full payments on the loan. Therefore, the claim related to missed payments.

Again, after the claim was paid, Sovereign was able to take a beneficial interest in the loan and take part in a debt restructuring, which was said to have ?performed on schedule?.

Although Sovereign did pay out three claims stemming from the economic crisis in Argentina, it was able to help other insureds during this time minimise their exposure to damages through its membership in the Berne Union.

In specific, it was able to mitigate losses incurred by insureds by effecting the conversion and transfer of regularly scheduled principal and interest repayments outside of Argentina.

Sovereign said that, notwithstanding exchange controls in place during that period, lenders were successful in converting and transferring almost $100 million in scheduled payments because they were insured by Sovereign.