Geopolitical Tensions Cause Rise in Political Risk Losses: Willis Towers Watson Report

Increasing geopolitical concerns are causing a rise in political risk exposures with 55 percent of global organizations with revenues greater than $1 billion experiencing at least one political risk loss exceeding a value of $100 million, according to a survey from Willis Towers Watson and Oxford Analytica.

The most frequently reported political risk related loss was exchange transfer which affected nearly 60 percent of those experiencing losses, followed by political violence (48 percent) and import/export embargoes (40 percent), according to the report, titled “How are leading companies managing today’s political risks? 2018 Survey and Report.”

In addition, the survey revealed that the political risk implications of emerging market economic crises are increasing, most notably in countries like Turkey and Argentina.

In their annual Political Risk Survey, Willis Towers Watson and Oxford Analytica conducted interviews with senior executives of 40 leading global firms across different industry sectors to determine their response to ongoing global political volatility.

Other key survey findings include:

• The key geopolitical threats were seen as U.S. sanctions policy, emerging market crises, protectionism/trade wars, and populism and nationalism.

• While Russia and Vietnam were most frequently cited as countries where losses occurred, losses were recognized throughout Europe, Latin America, Asia Pacific, Africa and the Middle East.

• Political risk levels increased for 60 percent of respondents since last year, and nearly 70 percent stated that they had scaled back operations in a country as a result of political risk concerns or losses.

• More than 70 percent reported holding back from planned investment as a direct result of political risk concerns.

• Larger companies were more likely to report using avoidance strategies. For example, among companies with more than $1 billion in revenues, 82 percent stated that they had scaled back investments, and 86 percent had avoided future investments. Companies most frequently reported scaling back investments in Nigeria, Iran, Russia and Venezuela.

“It is clear from our findings that political risk has increased significantly, now becoming a reoccurring and material cost of doing business,” said Paul Davidson, chairman and chief executive officer, Willis Towers Watson Financial Solutions.

“If these levels remain elevated, companies will fall under increasing pressure from shareholders for greater levels of transparency around the losses actually incurred,” said Davidson. “Companies will need the ability to monitor, quantify and manage these risks as well as develop strategies to mitigate them.”

Simon Coote, deputy director, Oxford Analytica, said: “Companies typically grew up managing cyclical economic risks, not political. However, with the recognition of rising losses due to political risk, it can no longer be excluded from executive decision-making. To better mitigate political risk exposure, companies need to reframe how they operate. Taking steps to manage political risk must become a requirement of doing business, not simply regarded as an inevitable cost of operating in challenging environments.”

Source: Willis Towers Watson

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