New Analysis Reveals Political Risk Exposures Around the World
January 28 2015 - 11:00AM
Investors in Ukraine can expect to lose $34 in every $100 invested
over a 10 year time frame as a result of political risks, stemming
from the increased threat of escalating conflict and the country's
challenging economic situation, according to new analysis from
Oxford Analytica, the international consulting firm, and Willis
Group Holdings (NYSE:WSH), the global risk adviser, insurance and
reinsurance broker.
Meanwhile, companies can expect to lose $20 in every $100
invested in Venezuela over a ten year horizon as a result of
political risks arising from oil price volatility, political
upheaval and the possibility of a sovereign default. Over the same
period the expected loss in the United States and United Kingdom,
relatively low-risk jurisdictions in comparison, is $1 in every
$100.
Turning to Asia, investors in Bangladesh can expect a loss of $8
for every $100 invested over ten years. Given the threat of
government intervention the estimated loss over the same period in
China rises to $9 in every $100. In Russia the figure is $30 in
every $100 as a result of sanctions and heated trade tensions –
making it the riskiest of all the major emerging economies.
The snapshot findings were revealed by a new political risk
model, called VAPOR (Value at Political Risk), launched by Willis
and Oxford Analytica today. The model allows global companies to
assess and compare the financial implications of exposure to a
suite of political risks – in individual countries, regionally or
globally. Initially, VAPOR covers six different political risk
perils, across 11 different industry types in 100 countries.
North Korea is the riskiest investment destination currently
rated by VAPOR. Companies investing there can expect an estimated
political risk loss of $40 in every $100 invested over a ten year
period.
Political risks are the threats posed to businesses by political
upheavals or social change. Common examples include expropriation,
political violence and the imposition of trade sanctions. They are
inherently unpredictable – arising, as they do, from complex,
dynamic human societies – and they often have catastrophic
consequences. The identification and management of these risks in a
volatile political and economic climate throughout the world
represents a significant and increasingly pressing challenge for
the boards of global companies.
"VAPOR offers a potential solution to the challenge of putting
dollar values on political risk – for the first time," said Paul
Davidson, CEO of Willis Financial Solutions. "This capacity does
not currently exist anywhere; an ability to compare the financial
impact of political risk exposure, in real dollar-value terms and
by industry, will give corporate risk managers and financial
planners a competitive edge. Companies that can estimate the cost
of political risk contingencies over time to their underlying
business operations will see a step-change improvement in their
strategic planning and risk management processes."
Sam Wilkin, Senior Advisor, Political Risk at Oxford Analytica,
said: "Inspired by the catastrophe modelling industry, VAPOR takes
a probabilistic approach that assesses whether a particular society
is more or less vulnerable to experiencing a suite of discrete
political contingencies over time – and then estimates the possible
cost, over time, of these contingencies to business. This gives
businesses the ability to evaluate the costs of geopolitical risks
when deciding which industry and country to invest in."
About Oxford Analytica
Founded in 1975, Oxford Analytica is an international consulting
firm based in Oxford which provides business and political leaders
with timely analysis of worldwide political, economic and social
developments. Oxford Analytica aims to support multinational
businesses, international organisations and governments in
understanding the complex forces affecting them, managing their
risks and taking informed decisions.
About Willis
Willis Group Holdings plc is a leading global risk adviser,
insurance and reinsurance broker. With roots dating to 1828, Willis
operates today on every continent with more than 18,000 employees
in over 400 offices. Willis offers its clients superior expertise,
teamwork, innovation and market-leading products and professional
services in risk management and transfer. Our experts rank among
the world's leading authorities on analytics, modelling and
mitigation strategies at the intersection of global commerce and
extreme events. Find more information at our
website,www.willis.com, our leadership journal, Resilience, or our
up-to-the-minute blog on breaking news, WillisWire. Across
geographies, industries and specialisms, Willis provides its local
and multinational clients with resilience for a risky world.
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