Aon’s New ‘Political Risk Map’ Focuses on ‘Arab Spring’; Global Threats

Aon’s latest “Political Risk Map” focuses on the implications of the uprisings in the Middle East, collectively referred to as the “Arab Spring,” and the political transitions they have produced, which “raise concerns for businesses around the world.”

Aon points out 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.”

Aon Risk Solutions, its global risk management business, measured the political risks in 167 countries and territories to “assess the risk level of exchange transfer, sovereign non-payment, political interference, supply chain disruption, legal and regulatory, and political violence.”

Roger Schwartz, Sr. VP – political risk for Aon Risk Solutions’ Crisis Management Practice, indicated that the 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.”

While so far there haven’t been any uprisings in the U.S., France, Russia and China, although there have been demonstrations, all four countries are holding elections in 2012, which Aon said, “may contribute to greater global uncertainty.”

In addition the ongoing crisis in the euro zone “remains a significant risk, and extends to those countries economically or otherwise dependent on the region.”

Aon’s map provides an indication of overall levels and types of political risk, which relates to the actions or inactions of foreign governments, including third-party countries, which “may deprive a business of its assets, prevent or restrict the performance of a contract and affect repayment of loans to financing banks.”

The Political Risk Map assesses the risk level of “exchange transfer, sovereign non-payment, political interference, supply chain disruption, legal and regulatory, and political violence. Each country is rated as Low, Medium-Low, Medium, Medium-High, High or Very High. European Union and Organization for Economic Cooperation and Development member countries are not rated in the 2012 map.

“Country ratings reflect a combination of analysis by Aon Risk Solutions, Oxford Analytica, a global analysis and advisory firm, and the opinions of 26 Lloyd’s syndicates and corporate insurers actively writing political risk insurance.”

Three countries were assigned “upgrades,” i.e. actions which lower the level of risk – Moldova, Ukraine, and Uruguay.

However, Aon assigned “downgrades,” i.e. the overall country or territory risk is rated higher than the previous year, for 21 countries, listed as: Azerbaijan, Bahrain, Belarus, Colombia, Croatia, Egypt, Falkland Islands, Gabon, Guatemala, Guinea Bissau, Libya, Morocco, Oman, Pakistan, Swaziland, Syria, Thailand, Tunisia, Uganda, Vietnam, Western Sahara. Each country on the map is rated according to the different types of risks it faces.

71 countries have significant exchange transfer risks. 104 countries were identified as having legal and regulatory risks, the largest category. 92 countries were named as having risks of political interference, which includes threats of nationalization and expropriation.

81 countries are tagged as prone to political violence, which ranges from strikes and riots to outright civil war and includes terrorism risks.

Sovereign non-payment – the “risk of failure of a foreign government or government entity to honor its obligations in connection with loans or other financial commitments -” exists in 85 countries. 61 countries are subject to supply chain disruptions.

Source: Aon

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