27 March 2013News

Aon’s political risk map signals improvements

Aon Risk Soution's political risk map, created in partnership with Roubini Global Economics, indicated some decrease in global political risk and featured only 12 downgrades in stability rankings—almost half the number of the 21 assigned last year. 13 countries were given upgrades, indicating that their risk is rated better than in the previous year, compared to 3 upgrades in 2012.

Phil Bonner, head of credit and financial risks at 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.”

Regional risk: South America as a safe bet

According to Aon’s map, which rates countries on factors including political violence and banking sector vulnerability, the Middle East and North Africa are by far the most troubled areas, although they fared much better this year than in 2012, when the region was rocked by the Arab Spring. The map indicates that countries on Europe’s periphery, including Azerbaijan and Armenia, also showed improvements (albeit from a low base).

Of interest to Bermuda reinsurance players is the relative stability of the Latin American and Caribbean region. While five countries in the region carried all six risk markers, Brazil retained a “Medium Low” risk rating of 2, although according to Aon the country still carries a high risk when doing business. According to the map: “reforms and infrastructure investments are overdue, but growth potential and demographics remain supportive.” Columbia, Peru, Paraguay, and Suriname all fell within the medium risk spectrum, while French Guyana is the only rated nation with a risk rating of “Low”.

A link to the map can be found  here.