Canadian Underwriter

Is political risk the next NatCat?

May 1, 2023   by Philip Porado

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Much like NatCat events, political risk losses tend to be low frequency but high severity, said a new Oxford Analytica survey, produced for WTW, on how global businesses are managing current political risks.

“Political risk losses occur rarely but tend to be devastating in effect,” said the survey’s authors. “As with other catastrophe risks, these statistical characteristics tend to make political risks difficult to model.”

Nine out of 10 surveyed companies across all economic sectors reported some level of political risk loss, with the war in Ukraine being a key driver. Impacts varied by region — 86% of Western European respondents reported the conflict had a net negative financial impact, compared to 33% of North American firms.

Looking at key geopolitical trends, 44% of respondents expect the government’s role in the economy will ‘greatly strengthen,’ and 36% said it would ‘strengthen.’ Just 8% called for it to ‘weaken’ and 2% predicted it would ‘greatly weaken.’ Respondents were able to select which questions they answered, so the numbers do not total 100.

Surveyed companies also called for social turmoil to continue. Looking at popular protests, 44% said these activities would ‘greatly strengthen,’ 28% said they would ‘strengthen,’ 6% called for the tactic to ‘weaken’ and 2% ‘greatly weaken.’

In terms of global power balance, 44% called for geographic and strategic competition between world powers (e.g., the U.S., Europe, China and Russia) to ‘greatly strengthen,’ and 34% said it would ‘strengthen.’ Only 1% predicted it would ‘weaken.’ Plus, 42% said a trend toward decoupling from China would ‘greatly strengthen.’

Fully nine out of 10 companies surveyed reported a political risk loss.

“Nearly 70% of losses were less than $50 million [and] only 2% exceeded $250 million,” the report said. Just over 20% of respondents experienced political losses between $50 million and $99 million, and fewer than 10% reported losses of between $100 million and $249 million.

And, 68% of survey respondents said they had purchased political risk insurance.

Counting up Canada

While the survey did include Canadian participants, the sample size was not large enough to produce Canada-only results, according to a WTW spokesperson.

The data did, however, indicate the Canadian organizations that participated were more likely to:

  • Think governments would play a bigger economic role going forward;
  • Think popular protests would greatly strengthen;
  • Think geo-strategic competition between world powers would strengthen, and economic decoupling between China and the West would strengthen;
  • Report political risk losses — but mostly smaller political risk losses (less than $50 million); and
  • Purchase political risk insurance.

The 2023 study combined in-depth interviews (18 participants) with a broader survey (50 respondents) of companies across economic sectors. While prior surveys only invited clients of WTW and Oxford Analytica to participate, the authors said the 2023 survey sample is more representative of globalized businesses.

The larger survey also uncovered “a striking regional disparity in how companies have so far been impacted by the [Ukraine] conflict,” with European respondents hit hard but most North American companies remaining largely unscathed.

While a third of North American companies reported a negative financial impact, a surprising 50% of those respondents reported a net-positive impact.

“The crisis has also meant higher energy prices, so windfall profits for us,” one oil and gas industry executive said. Similarly, a commodities trader pointed to higher profits from liquified natural gas (LNG) trading.


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