Reinsurance News

Multinationals cite major concern over growing political risk: Marsh

27th February 2018 - Author: Staff Writer

Geopolitical instability remains a top concern for multinational businesses in 2018 with events such as the North Korea missile crisis, Euroscepticism, and increased trade protectionism, driving political risk that could boost demand for credit and political risk re/insurance.

Marsh’s 2018 Political Risk Map found regions facing political turbulence or increased protectionist trends include several nations across Latin America, Africa, Europe, and the U.S.

Analysts point to the risk of increased global trade protectionism as a growing threat; in the U.S. further trade restrictions are expected to rollout in 2018, after a brief decline in such measures being implemented in 2017.

In several Latin American countries, including Brazil, Colombia, Mexico, Paraguay, and Venezuela, short-term political risk scores (STPRI) deteriorated due to upcoming presidential and legislative elections.

In Europe, Marsh highlighted concerns over growing anti-establishment and Eurosceptic parties, particularly in the face of Spain and Italy’s upcoming general election in March, while the UK’s negotiations to exit the European Union continue to loom over the political risk landscape.

Although the African region saw some of the biggest improvements in political risk scores in 2018, uncertainty around elections and successions has led to sharp increases in political risk across Kenya, Gabon, and Cote d’Ivoire, Marsh said.

Evan Freely, Global Practice Leader, Credit Specialties, Marsh, said; “social instability, adverse government actions, and terrorist threats are among the most common political risks that multinational organisations now face when trading or investing in foreign countries.

“While political risks are often not directly controllable in this complex and ever-changing environment, in many instances they can be mitigated through credit and political risk insurance, providing greater confidence in the benefits of these opportunities in potentially unstable areas of the world.”

In a starkly interconnected world, re/insurers are advised to adopt a holistic and collaborative approach to risk, looking at the broader global picture instead of individual risks, and proactively assessing and mitigating against these with strong public and private sector ecosystems and distribution channels.

For re/insurers, an emphasis on collaboration could mean reaching out to governments facing similar tasks in risk assessment and mitigation and sharing risk data and assessment models.

Anticipating and preparing for future risks means keeping abreast of geopolitical developments and adapting policies and underwriting accordingly.

A holistic approach to geopolitical risk management offers reinsurers opportunities, not only to expand credit and political risk lines, but to contribute to global economic and political stability.

Marsh’s 2018 Political Risk Map is based on data from BMI Research, a leading source of independent political, macroeconomic, financial, and industry risk analysis.

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