To complement its print version, Aon Risk Solutions, the global risk management business of Aon plc, has unveiled a new online and interactive political risk map with data going back more than 15 years. Aon explained the need for the enhanced version as reflecting recent events, including the “2008 financial crisis and the 2010 Arab Spring.”
The 2013 map, developed in partnership with Roubini Global Economics, identifies certain emerging markets that are experiencing reduced political risk exposures. It “measures political risks, political violence and terrorism in 163 countries and territories to help companies assess the risk levels of exchange transfer, legal and regulatory risk, political interference, political violence, sovereign non-payment, and supply chain disruption.”
Aon also noted that for the first time the 2013 Political Risk Map “measures banking sector vulnerability, risk to fiscal stimulus and risk of doing business.”
Aon said the map “produces high level country overviews and tailored comparisons of country ratings and changes in risk over time. By accessing Aon’s interactive map, institutions can track their specific political risk exposures in emerging markets, both on a current and historical basis. The map data will be updated quarterly and at the time of significant political risk events.”
The 2013 map “shows an increase in the number of countries with upgraded political risk ratings (where the overall country or territory risk is rated lower than the previous year),” said the announcement. “Thirteen countries were upgraded in 2013 as opposed to three in 2012. The 2013 map also shows only 12 countries experiencing downgrades in comparison to 21 in 2012.”
Luigi Sturani, head of Aon Risk Solutions’ property, casualty and crisis management team of the Global Broking Center in London, commented: “With political risk rising up the boardroom agenda, our clients must have access to first-class data and analytics to determine the global drivers of change. Aon’s leading crisis management expertise combined with the current and historical data means we can provide our clients with a valuable and in-depth Political Risk Map unsurpassed in the market.”
Phil Bonner, Head of Credit & Financial Risks from Aon Benfield said: “The insurance market’s ability to absorb risk and react to the changing world highlighted in the map, is to a large extent dependent upon reinsurers’ capacity for single and aggregated risks. There is current uncertainty surrounding the levels of contagion risk – the extent to which financial difficulties will spread from one or more banks to a large number of other financial institutions within geographic regions. This means that real and accurate assessment of aggregation risk is critical in maintaining capacity in the market.”
Matthew Shires, head of Aon Risk Solutions’ political risk team in London, added: “Despite the upgrades this year, businesses operating in emerging markets still face significant political risks. We work closely with our clients to identify their exposures to these risks. Supported by powerful data and analytics of current and historical trends this new interactive map gives clients unprecedented clarity when assessing their political risks in the emerging markets.”
Richard Green CEO, Roubini Global Economics, observed that in 2013 “political risk exposure across emerging markets remains volatile; however, our data illustrates a differentiation led by a country’s financial ability to bolster its balance sheets.
“Our analysis indicates that Oman, Bahrain and UAE have all experienced upgraded political risk exposure, illustrating their strength in the region to withstand the impact of the 2010 Arab Spring. The unique and interactive Aon Political Risk Map will give clients a fresh insight into the trends in emerging markets and a quarterly snapshot of how political risk is evolving based on the industry’s strongest research.”
Aon listed the following 2013 upgrades and downgrades in country ratings:
— Upgrades (where the overall country or territory risk is rated lower than the previous year)
13 upgrades (2012: three upgrades): Armenia, Azerbaijan, Bahrain, Barbados, Belarus, Guatemala, Macedonia, Montenegro, Oman, Pakistan, Swaziland, Thailand, the United Arab Emirates
— Downgrades (where the overall country or territory risk is rated higher than the previous year)
12 downgrades (2012: 21 downgrades): Algeria, Cameroon, Chad, Ethiopia, Madagascar, Mali, Namibia, Moldova, Turkmenistan, Uzbekistan, Panama and Paraguay.
The map also indicates that for 2013 there were more upgrades than downgrades. “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, compared to downgrades in 12 countries.”
In addition the map identifies certain trends, summarized as follows:
— Improvements on Europe’s Periphery – Several Central Asian and Caucasus countries – Azerbaijan, Armenia, for example, showed improvement, admittedly from a low base. This reflects a concerted effort in emerging Europe and Commonwealth of Independent States toward structural reform to attract investment and to increase market share.
While there is still room for improvement, the persistent economic strain in Western and Eastern Europe increased economic pressure on several regional governments and brought downgrades in Moldova and Uzbekistan (the improvement in government institutions mitigates the effect of these risks on investments by strengthening country balance sheets).
— A new order in the Middle East – 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. While this might be temporary, as the region is still fragile, this crystallizes a divergence in the region between the countries with stronger economic and financial institutions and those with greater wealth which increases their resilience to adverse political and economic events. Moreover, it underscores the importance of strong corporate and financial institutions, which cushion the effects on individual countries.
— Aftershocks in Western Africa – Cameroon, Chad, and Mali all were downgraded, along with adjoining Algeria, reflecting the spillovers from the difficult regime changes in North Africa which destabilized these countries. Flows of weapons and insurgents across borders have exacerbated high political risk. Developments so far in 2013 indicate the potential for further downgrades.
Aon explained that it compiles the map by measuring the “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.
“In each specific risk category, as well as the overall rating, each country is rated as Low, Medium-Low, Medium, Medium-High, High or Very High. Member countries of the EU and Organization for Economic Cooperation and Development are not rated in the 2013 map.
“Country ratings reflect a combination of analysis by Aon Risk Solutions, Roubini Global Economics—a global analysis and advisory firm—and the opinions of 26 Lloyd’s syndicates and corporate insurers actively writing political risk insurance.”