Category Archives: Political Risk

I.I.I. Market Report: Managing Geopolitical Risk

On-demand Webinar
With the rising tide of nationalism and regional tensions around the world arguably more severe than since the Cold War, geopolitical risks seem to be only increasing. For insurers and insureds, the impacts of geopolitical risks can have a significant impact on the bottom line; whether through business disruption, financial loss, or even – and most tragically – human peril. Insurance is at the center of how businesses and people prepare and mitigate the risk.

In this webinar, leading experts from the insurance industry and the world of public affairs discuss the current geopolitical climate, subsequent risks for organizations and risk transfer solutions.

Watch this webinar now.

Presentation date
Tuesday, May 16, 2017

Speakers
Natalie de Clermont
Underwriter, Political Risk and Trade Credit, Neon

Harriet Karwatowska
Broker, Miller

Amy Pope
Nonresident Senior Fellow, Adrienne Arsht Center for Resilience

Hank Watkins
President, North America, Lloyd’s

Sean Kevelighan (moderator)
Chief Executive Officer, Insurance Information Institute

Additional Resources
Lloyd’s Report: Political Violence
I.I.I. White Paper: Terrorism Risk Insurance Program: Renewed and Restructured

U.S. Elections Add to Growing Political Risks Businesses Face

The 2016 U.S. presidential election is one of the rising political risks facing businesses and investors in the year ahead, according to Marsh’s Political Risk Map 2016.

Terrorism and struggling emerging economies, such as China and Russia, are also among the growing political risks businesses face.

Marsh notes that the recent terrorist attacks in Paris and San Bernardino, California have intensified political rhetoric and brought foreign relations and defense policy topics to the forefront.

With polls showing national security to be a major concern for voters, foreign policy will remain a key theme on the campaign trail in 2016 – and will be top of mind for the next presidential administration.”

Marsh observes that in the last decade multinational organizations have undertaken unprecedented international expansion, leaving them exposed to global credit and political risks like never before.

And those risks–including terrorism and political violence, armed conflicts, increasingly powerful anti-establishment political movements, and persistently low commodity prices–continue to grow.

Against this backdrop, it’s critical for businesses to be prepared for the possibility that political violence, unrest, or other large- scale crises will quickly develop in virtually any part of the world – including those countries that were historically seen as safe or stable, Marsh says.

Companies can prepare for these risks by managing their credit risk, building resilient supply chains, protecting their people and by protecting their assets through insurance.

Marsh notes:

Credit and political risk insurance can protect against a variety of risks, including expropriation, political violence, currency inconvertibility, non-payment, and contract frustration.”

Marsh’s Political Risk Map 2016, with data and insight from BMI Research, presents country risk scores for more than 200 countries and territories, helping businesses and investors make smarter decisions about where and how to deploy financial resources–including risk capital–globally in 2016 and beyond.

Aon: Rising Political Risks in Emerging Markets

The number of countries with downgraded political risk ratings  grew  in the last year, as all five emerging market BRICS countries (Brazil, Russia, India, China, South Africa) saw their risk rating increase, according to Aon’s 2014 Political Risk Map.

As a result, countries representing a large share of global output experienced a broad-based increase in political risk including political violence, government interference and sovereign non-payment risk, Aon said.

The 2014 map shows that 16 countries were downgraded in 2014 compared to 12 in 2013. Only six countries experienced upgrades (where the territory risk is rated lower than the previous year), compared to 13 in 2013.

Aon noted that Brazil’s rating was downgraded because  political risks have been increasing from moderate levels as economic weakness has increased the role of the government in the economy.

This is of particular concern given this year’s World Cup and the 2016 Olympics.†

Russia’s rating was also downgraded due to recent developments with the Ukraine and the annexation of Crimea.

Aon said:

Political strains and focus on geopolitical issues have exacerbated an already weak operating environment for business and exchange transfer risks have increased following the risk of new capital controls. Russia’s economy continues to be dominated by the government, so economic policy deadlock has brought growth to a standstill and with it an increase in the risk of political violence.†

India, China and South Africa also saw their ratings downgraded.

In  another key takeaway  Aon noted that Ukraine is now rated a very high risk country, as the implications of developments following the annexation of Crimea by Russia and government collapse warranted a further downgrade in political risk.

Exchange transfer risks, which are already very high will be further increased by restrictions in the financial system, Further, the willingness and ability of the country to settle its debts may be affected.†

The map measures political risk in 163 countries and territories, in order to help companies assess and analyse their exposure to exchange transfer, legal and regulatory risk, political interference, political violence, sovereign non-payment and supply chain disruption.

Hat tip to Insurance Journal which reports on this story here.

Political Risks and Ukraine Crisis

The Ukraine crisis is making headlines around the world, and also in the insurance world.

While events are still unfolding, Russia’s move to annex the Crimea region of Ukraine has prompted United States and European Union leaders to impose economic and travel sanctions on some Russian officials.

U.S. and EU leaders will meet next week in the Netherlands to discuss the crisis and further sanctions are possible.

As for insurance implications, the ongoing turmoil has the potential to impact the political risk, structured credit and trade credit insurance markets.

Broker Marsh said in a briefing last week that some insurers had stopped underwriting political risk insurance in the two countries due to concern over the political unrest and credit ratings in Ukraine and potential sanctions in Russia.

Canadian Underwriter reported on the story here.

Noting the uncertainty of the evolving situation, Marsh said:

Companies with interests in the region face the potential for damage to assets through political violence and possible broader expropriation measures or sanctions against foreign interest in Russia should sanctions be imposed against the country. This is in addition to the potential for payment delays on trade payment obligations due from customers, especially those in Ukraine.†

Marsh also noted that because Russia is the political risk and structured credit market’s largest country exposure, if the current conflict results in large-scale insurable damage, global premiums and insurance capacity for these coverages could be adversely affected.

There is also the potential for a downgrade of the country rating by the ratings agencies and possible payment difficulties for creditors of Ukrainian companies, either commercial or economic, Marsh added.

The broker advised businesses with operations in Ukraine, especially those in Crimea, to check their crisis response and insurance programs to ensure they sufficiently mitigate the potential effects on their operations.

The I.I.I.’s International Insurance Fact Book has insurance and economic data on Russia and Ukraine here.

Global Rise in Political Risks for Investors

Direct foreign investors operating in the Middle East and North Africa (MENA) face an increasing level of political risk as a result of the instability and uncertainty created by the Arab Awakening, according to an annual risk report.

The 2014 Marsh-Maplecroft Political Risk Map reveals that more than 60 percent of countries in the MENA region have experienced a significant increase in the level of political violence since 2010.

According to the map, 17 countries since 2010 have experienced a significant increase in their level of dynamic political risk, more than half of which are located in the MENA region.

Note: dynamic political risks focus on short-term challenges, such as rule of law, political violence, the macroeconomic environment, resource nationalism and regime stability.

Syria has seen the most significant increase in risk and is now ranked as the second-highest risk country behind only Somalia.   For the first time, Egypt is now categorized as “extreme† risk for political violence, a deterioration driven by post-coup violence and increased terrorist activity in the Sinai Peninsula.

Over the past year, East Africa was host to the most countries with an increase in political violence, according to the map.

Marsh notes that the increase in political violence in East Africa presents significant challenges to foreign investors looking to the region following the discovery of substantial oil and gas reserves.

Despite these risks, the map points to opportunities for investors in six growth markets where overall dynamic political risk has significantly improved since 2010: the Philippines, India, Uganda, Ghana, Israel, and Malaysia.

The map draws from Maplecroft’s Political Risk Atlas 2014 and highlights dynamic political risks across 197 countries, including conflict, terrorism, macroeconomic stability, rule of law, and regulatory and business environments.

Hat tip to Business Insurance which reports here.

Aon: Political Risks Persist for Businesses

The number of countries with upgraded political risk ratings has increased, according to Aon’s 2013 Political Risk Map.

After several years of greater downgrades due to the Arab Spring, the political effects of the global financial crisis and persistent strains in South Asia, political risk has eased in 13 countries, Aon says.

Despite the upgrades this year, Aon warns that businesses operating in emerging markets still face significant political risks.

The 2013 map shows that 13 countries were upgraded in 2013 compared to just three in 2012. The 2013 map also shows only 12 countries experiencing downgrades, compared to 21 in 2012.

An upgrade is where the overall country or territory risk is rated lower than the previous year.

After dominating the downgrades in 2012, three Middle Eastern countries (Bahrain, Oman and UAE) were upgraded in 2013, reflecting a stabilization and differentiation of political risk in the MENA region.

Several Central Asian and Caucasus countries – Azerbaijan, Armenia, for example, showed improvement, though admittedly from a low base.

In Western Africa, Cameroon, Chad and Mali all were downgraded, along with adjoining Algeria, reflecting the spillovers from difficult regime changes in North African which destabilized these countries.

The 2013 map measures political risk in 163 countries and territories to assess the risks associated with exchange transfers, sovereign non-payment, political interference, supply chain disruption, legal and regulatory regimes, political violence, ease of doing business, banking sector vulnerability and governments’ capability to provide fiscal stimulus.

The map is now online and interactive and can be accessed here.

PC360 has more on this story.

As Political Risk Concerns Rise, So Does Insurance Interest

Two political risk reports are pointing to the continued instability in the Arab Spring countries as an ongoing concern for businesses in 2012.

Aon’s 2012 Political Risk Map notes that while clarity has begun to emerge in some of the countries affected by the Arab Spring, the resulting tension has spurred or intensified protests in dozens of countries, both within the region and elsewhere.

In a press release, Aon says that interest in political risk insurance is rising, as chief stakeholders take notice:

These uprisings and protests remain a key concern in 2012 and we see this reflected in rating downgrades of several countries. This is forcing CEOs and CFOs of businesses with overseas operations in emerging markets to revisit risk management and risk mitigation measures.†

In addition, the outcome of elections in the United States, France, Russia   and China may contribute to greater global uncertainty, while the eurozone debt crisis also remains a significant risk and extends to those countries economically or otherwise dependent on the region, according to Aon.

In similar vein, a recent report from risk analysis firm Maplecroft highlights the risk of continuing instability in Arab Spring countries among the most significant political risks for businesses and investors in 2012 and beyond.

Of the 10 states with the fastest increasing risk trends in Maplecroft’s short-term Political Risk Index, nine are located in the Arab world, reflecting the political upheaval and unrest taking place in the region. These countries are: Algeria, Bahrain, Egypt, Kuwait, Libya, Morocco, Oman, Syria and Tunisia.

Maplecroft’s analysis indicates there is also increased risk of unrest in other Arab states, including Saudi Arabia and Sudan.

Check out PC360Â  for more on this story.

Political Risk Higher

Elevated political risk levels will continue in 2010, as political and financial instability remain a feature of the business landscape as a result of the recession, according to the 17th annual political risk map produced by Aon. In its ranking of the political risk in 209 countries and territories, Aon said the following 18 countries have seen conditions worsen in the past year leading to a downgrade: Algeria, Argentina, El Salvador, Equatorial Guinea, Ghana, Honduras, Kazakhstan, Latvia, Madagascar, Mauritania, Philippines, Puerto Rico, Seychelles, Sudan, United Arab Emirates, Ukraine, Venezuela and Yemen. Meanwhile, Sudan, Venezuela and Yemen have been added to the very high category, joining Afghanistan, Congo DRC, Iran, Iraq, North Korea, Somalia and Zimbabwe. On a more positive note, eight countries/territories have been upgraded to a lower risk level. Aon said overall rising risk levels in 2009 have led to a significant volume of credit and political risk claims in international insurance markets. It pointed to non-payment of sovereign and sub-sovereign debt obligations as a major issue for underwriters insuring risks in Ghana. Insurers also continue to experience a multitude of claims stemming from payment defaults by private sector banks in Ukraine. The map measures the risk of currency inconvertibility and transfer; strikes; riots and civil commotion; terrorism; sovereign non-payment; political interference; supply chain interruption; legal and regulatory risk. The 2010 risk   map introduces new indices looking at food, agricultural commodity and water supplies. Check out I.I.I. information on terrorism risk and insurance.