Insurance against political risk: Settlements and the Yanai governmental insurance corporation

The session of the Directors-General Committee opened with the committee’s coordinator briefing on the discussion held by the Ministerial Committee for Economic Affairs about the demand put forward by Israeli banks to receive a full government guarantee both for “political risk” and commercial risks associated with operations in the territories.

Report by Chaim Yisraeli to the aide to the minister of defense and the IDF chief of staff regarding the decision made by the Ministerial Committee for Economic Affairs to approve “insurance against political risk” to the first group of settlers in the Golan Heights, who were occupying a Syrian military camp at the time.

The 45th session of the Directors-General Committee focused mainly on finance and commerce. This document is an addendum to the meeting minutes, entitled “Minimum Tender Conditions”. It lists the conditions that had been formulated with a view to advancing the option of an Israeli company resuming operations of a castor oil factory that had been seized in al-Arish. Condition no. 9 in the list stipulates that the supervisor of abandoned property, with whom such a company would sign a contract, would “cover the company for political risk”.

In this session, the Directors-General Committee discussed matters concerning political guarantees twice: First, the committee recommended providing such a guarantee to tourism enterprises established in the territories (Sec. 4/70). Immediately thereafter, the committee was informed of the notification from the accountant general at the Ministry of Finance, clarifying that the provision of political guarantees for investments in the territories required approval from the Knesset Finance Committee “in each and every case,” including renewed approvals for existing agreements. The accountant general further stated that the committee would have discretion to approve political guarantees up to a maximum of 10 million Israel pounds. These decisions marked the beginning of regulation for political guarantees in the occupied territories and illustrate the broad discretion the committee had to make decisions on such guarantees, under the watchful eye, and formal oversight, of the government.

Following the decision of the Ministerial Committee for the Administered Territories to approve the establishment of factories in the West Bank by “local, Israeli and foreign” investors, the Ministry of Agriculture submitted a proposal to the Directors General Committee concerning “Incentivizing factories in the Judea and Samaria Area”. In its 86th session, the committee discussed and approved this proposal – which is the document referred to here. The approved proposal draws a distinction between waivers extended to “local” investors and “Israeli and foreign investors”. While the former would be given loans only, the latter would benefit from most of the waivers given to Type A industrial zones in Israel, subsidized industrial buildings, export incentives, full political guarantees, and, in cases deemed eligible, also commercial guarantees for operations in the territories. At the conclusion of the session, the Directors General Committee noted, among other things, that “the decision on waivers for investors does not preclude extending special waivers to settlers for establishing industrial zones”, and that the possibility of applying this policy to the Gaza Strip and northern Sinai would be looked into.

As settlements and Israeli business ventures in the occupied territories proliferated, efforts began to regulate the provision of guarantees against political risks. This document contains the proposal for guiding principles for the provision of political guarantees presented to the Directors General Committee by the coordinator of government activities in the territories. The document focuses on the types of scenarios eligible for political guarantees: a change in the international status of the territory, a change in government policy that interferes with commercial activity, and commercial losses incurred due to political resistance (such as a boycott). The Directors General Committee approved these principles and they were later used as the basis for determining the operations of the governmental insurance corporation, Yanai, which consolidated the field of political insurance in the territories.

One example of the responses political insurance was meant to provide appears in a communication from staff officer representing the industry and commerce ministry in the West Bank’s military government. As the field of political insurance was becoming institutionalized, the staff officer, S. Bachar, raised the question of Israeli factories that subcontracted work to factories in the territories. Bachar suggested that in these cases, the Directors General Committee should determine if government guarantee should be extended for raw materials, in that specific case, fabric, supplied by Israeli factories to their subcontractors.

In Resolution No. 5/114 from its July 3, 1969 session, the Directors General Committee adopted the recommendation of the attorney general to set up a government corporation that would consolidate insurance activity vis-à-vis investors in the territories, whom it would insure against “political risks” that are not covered under relevant laws in Israel. It was further decided that “the corporation shall be given a general guarantee by the government”, with the approval of the Knesset Finance Committee.

On the type of risks the company would cover, the committee referred to its decision from May 1 that same year, which is produced here as well. The risks are listed in Section B of Resolution 3/108 from that session and cover a change in the territorial status of the area, a change in government policy that harms commercial activities, and commercial losses as a result of boycotts by the population. This definition of the types of cases covered by political insurance remained nearly identical throughout the years government political guarantees were provided.

This is a copy of the proposal for the establishment of an insurance corporation for investments and political losses in the occupied territories. The proposal, with a short cover letter, was sent in October 1969 by the legal advisor to the Government Corporation Authority in the Ministry of Finance to several top figures in the political-military mechanism that handled the administration of the territories. These were representatives of the finance, justice and defense ministries. The proposal was based on a meeting held with the addresses and in coordination with them and with the accountant general. It was to be brought to a vote at the Ministerial Committee for Financial Affairs.

The explanatory notes for the proposal state that “in order to encourage investment in the administered territories, there is a need to insure losses that cannot be covered under the Property Tax and Compensation Fund Law”, and lists three types of cases that would be covered by the government-backed political insurance: changes in the territorial status, changes in military government policy and “hostile actions by the population”.

The proposal clarifies that the corporation, and its discretion, would be subordinate to the Ministry of Finance and the Ministry of Defense and that its funding would come from the premiums it collects, and “from the state budget, as needed”. At the same time, the proposal left the Directors General Committee with a sizeable margin of discretion and power to provide political insurance, in recommending that the finance and defense ministers could delegate to the committee some of their powers relating to the corporation.

Yanai’s first board meeting laid the foundations for its activity. In its first meeting, the board declared the company’s establishment, appointed its members and determined operations framework. In its next meeting, a few days later, the board discussed principles of the policy Yanai would offer, and the list of enterprises to which the government has already gave its political guarantees. Value of these was estimated at 15 Million Israeli Pounds (some 97 Million NIS – 27.6 Million US$ – in 2017 values). In its third meeting, the board established its policies on the causes and types of damages that would be insured by Yanai, and rates of premiums to charged and compensation to be paid.

The seventh meeting of the Yanai Board of Directors opened with the news that the company’s proposal for its basic insurance policy had been approved by the minister of finance, in consultation with the minister of defense. The session focused mainly on the arrangements necessary to conclude the preparation stage and move into operations. The short minutes address two issues relating to powers: First, the board decided to ask the legal advisor for the Ministry of Defense to prepare the delegation of powers from the finance minister to Yanai with respect to determining eligibility for its policies. Second, the minutes note that “it has been agreed not to include a section in the policy noting that the company operates on behalf of the state and at its expense”.

Financial reports are a valuable source of information about companies, and Yanai is no different. This document, from the company’s financial report for 1976, describes the main shifts in its operations, including its establishment, its purpose and the types of insurance it offered.

In particular, the report notes that in the 1974/5 fiscal year, the company expanded, moving from insuring existing assets in the territories only to providing insurance for “bank and financial institution loans for factories in the administered territories”. As the document shows, the loan insurance Yanai provided for loans to settlement and business projects in the territories quickly reached a sizeable financial scope. The loan insurance option boosted encouragement for Israeli initiative in the territories not just quantitatively but also qualitatively. It helped secure the funding needed for investing in the first place, rather than only insuring investments after the fact, thus transforming the role the company played from a security net for settlements and Israeli-owned businesses in the territories into a real engine for development.

This memo was meant to be an exhaustive summary explanation of the transformations of the Yanai company from the moment of its inception until the date of the memo. It lists its goals, major modes of operation and consolidated financial data: its premium rates, the scope of insurance it provided for loans and assets in the territories, and its financial and organizational status.

In the final paragraph of the memo, Burg estimates that, “… should the Israel-Egypt peace treaty be, in fact, signed, the company would be liable for compensation in the sum of 300,000,000 Israel Pounds for the evacuation of the Sinai”. According to this estimate, 60% of the company’s insurance operations at the time concentrated on assets and loans in businesses and settlements in the Sinai. Yanai ultimately functioned as a government channel for transferring compensation money to some of the evacuees.

Yanai’s financial report for 1981 was compiled before the massive impact the universal compensation given to Sinai evacuees had on the company was felt. The report draft here presents a significant increase in the scope of asset and loan insurance in the territories provided by Yanai. It had tripled in 1978 compared to the previous year, and had since quickly grew.

Next to the summary of policy sums, a handwritten inscription notes: “To drop next year – insignificant”. In a handwritten exchange, dated March 2, 1981 and attached to the end of the draft report, one board member noted “I, too, am under the impression that this is a business that has lost its purpose and is trailing!” This comment refers to the situation that took shape after the Sinai evacuation compensation, which was universally awarded regardless of whether or not the assets or guarantees had political insurance. This precedent effectively turned political insurance from a service that must be purchased from Yanai to a fundamental, free undertaking toward any Israeli investment in the occupied territories, which, apparently resulted in a drop of policy sales over the following years, and Yanai’s ultimate dissolution three years after this draft report was written.

These meeting minutes from the session of the DGC sub-committee on Yanai Insurances provides an example to the wide range of civilian projects that were given governmental guarantees against political risks. Among these were a, upholsterer workshop in Katzrin, a liquor distillery in Mishor Edomim and a Bet Shemesh Engines factory in Qiryat Arba, as well as loans for various economic projects in the settlements.

A handwritten report of the Yanai board meeting. Section 5 of the discussion revolved around the future of political insurance in the territories. Given the decision to provide universal compensation for Sinai evacuees, regardless of whether or not they had taken out insurance with Yanai, the need for special political insurance was called into question. Cohen reported he had suggested to the board to merge Yanai with the Inbal governmental insurance corporation, and that the board had appointed a committee of board members to prepare a memo for the Ministry of Finance regarding the company’s future policies.

The Sinai precedent, which effectively meant full, cost-free government political insurance for the entire settlement enterprise in the territories did result in a sharp drop in insurance provided by Yanai. In 1984, the company was dissolved and merged with Inbal, as Cohen had suggested (see document 15).

Yanai’s last board of directors meeting was held in March 1984, at the offices of the Inbal governmental insurance corporation. In the meeting, the board declared Yanai’s merger with Inbal, by transferring the operations of the former to the latter beginning on that day, followed by official dissolution.

Yanai’s dissolution did not mark the end of political insurance in the territories. On the contrary, the company was dissolved precisely because the Sinai precedent made it clear that the government of Israel financially guaranteed political risk associated with all settlement activities in the territories, even if no insurance was taken out specifically for evacuation or policy changes. In other words, political insurance became a fundamental assurance the government effectively offered to all Israeli settlement and commerce activity in the territories.

Handwritten record of Resolution TS/25 of the Ministerial Committee for the Territories regarding “100% Political Guarantee” to Israeli investors in the Territories.

The brief letter the deputy legal advisor to the Ministry of Justice sent to the legal advisor of the Government Corporation Authority was meant to introduce amendments to the draft resolution on the establishment of a political insurance company in the Territories. The deputy legal advisor, Zeev Sher, recalls an earlier agreement whereby the name of the company that would provide political insurance in the Territories and the description of its activities “would not be too conspicuous” in the company’s public records, “for obvious reasons,” as he put it. Therefore, he proposed changes to sections A and B of the draft resolution, which listed the name of the company and its goals.

During a meeting held at Attorney General Meir Shamgar’s office, participants discussed the most appropriate way to establish insurance for political risk in the occupied territories. Legislation or governmental arrangements were ruled out, and the decision was to propose a governmental corporation “where insurance could be taken out and claims could be made and which would provide the legal framework.” The decision highlights the limited and simple nature of the requisite operation. Other than in exceptional cases, all decisions regarding specific policies will be made by the Directors General Committee for the Territories. The decision also clarifies that the government would provide the company with a guarantee “at the estimated cost of all insurance policies issued.”

Having been discussed at several forums, the draft resolution on the establishment of Yanai was submitted for the approval of the Ministerial Committee for Economic Affairs by Finance Minister Pinchas Sapir. The wording was similar to the one presented by the team that discussed the issue (see document 9), but some changes were made. One of these related to the comment made by the deputy legal advisor, whereby the description of the company’s activities would not be “too conspicuous in the documents themselves, for obvious reasons” (see document 20). Accordingly, Section B of the proposal was amended.

Instead of the explicit wording “to insure investments in the administered territories,” the revised proposal read: “to insure investments in territories held under the control of the State of Israel,” and instead of “against direct damage that may be caused by political elements,” as stated in the original draft resolution, the revised version notes: “against risks to be determined […] by the finance minister in consultation with the defense minister.”

The draft resolution submitted for the approval of the Ministerial Committee for Economic Affairs contains handwritten corrections and demonstrates the gap between the original resolution and the one ultimately submitted for the committee’s approval. The last line of the final, ultimately submitted, draft omits the directive to insure only direct damage in order “to keep it from exceeding a reasonable scope of insurance provided.” This attempt to limit the company’s operations was reversed in the final version, which states: “the company will ask the Knesset Finance Committee to approve a global government guaranteed for its insurance policies.”

This undated and unsigned document (probably written in late 1968) presents several issues arising from the content of the resolution adopted by the Ministerial Committee for Economic Affairs on March 3, 1968 (and its amendment in July of that year). The decision, whose various drafts are attached to the document, determines that the Ministry of Finance would cover any damage to property or bodily harm sustained by a resident of Israel in IDF-administered territories, which resulted directly or indirectly from combat or terrorist activity in the area. The document points out several lacunas in the existing resolution, including the absence of definitions and implementation protocols, as well as the question of whether similar insurance should be extended to a “local Arab.” When political insurance in the occupied territories was ultimately regulated with Yanai, a decision was made to offer government political insurance to Israelis and foreigners, but not to Palestinian residents of the territories.

As part of the work carried out to regulate the political guarantees issued from the beginning of the occupation until the establishment of Yanai, the office of the Coordinator of Government Activities in the Territories put together a list of all new factories approved by the Directors General Committee and awarded political guarantees pursuant to the decision of the Ministerial Committee for the Territories (document 18). The list contains the names of 16 approved factories and five with pending approvals, located throughout the territories – the Golan Heights, the Sinai Desert, the Gaza Strip and the West Bank.