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The Actuary The magazine of the Institute & Faculty of Actuaries

Corporates warn of rising political risk

Six in 10 major corporations believe that political risk levels have increased in 2019, an international survey by Willis Towers Watson (WTW) has uncovered.

China trade war named among top risks ©Shutterstock
China trade war named among top risks ©Shutterstock

Trade disruption is considered the most significant risk, cited by 58% of respondents in Europe, 66% in the Asia Pacific, and 77% in the Commonwealth of Independent States.

Sanctions against Russia, Iran and Venezuela, a trade war involving China, and Brexit were additional threats reported by the 41 major corporations surveyed.

This year has also seen an increase in the number of companies experiencing political risk losses, with 54% having suffered a loss due to political violence, up from 48% in 2018.

Concerns about violence were highest in Africa and the Middle East, with respondents reporting that new technologies such as drone strikes could exacerbate such risks.

“It is clear from our survey that political risk continues to increase, and that related financial losses are on the rise,” said Paul Davidson, WTW financial solutions chairman.

The top five political risk losses experienced in 2018 and 2019 are shown below:

Source: WTW
Source: WTW

Of the companies surveyed with revenues exceeding $1bn (£0.76bn), almost a third said they had experienced a catastrophic political risk loss of more than $250m.

Seven in 10 respondents said that emphasis on political risk management at their company has increased since last year, with 40% feeling more pressure to do so from investors.

It was also found that recent developments such as the China-US rivalry, and the sanctions that have arisen as a result, have made political risk more tangible.

Follow-up interviews with a panel of survey participants found that US-China strategic competition, stability in the Middle East, and ESG shocks were their top risks.

ESG risk had not appeared among the top 10 in 2018, but panellists indicated that rising tensions between business and society were increasingly leading to political risk events.

“Corporations now face a choice: to either maintain their global business models while accepting, mitigating or transferring the political risks associated with them, or attempting to realign themselves with the emerging shape of a new and apparently more nationalist global landscape," Davidson added.

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