@Risk

Aon Risk Services, the global risk management and insurance brokerage business of Aon Corporation has launched its 17th annual Political Risk Map, and it shows that political and financial instability remain a feature of the business landscape.

There are 18 downgrades in this year’s map, driven mostly by rising risk levels in 2009, which in turn led to a significant volume of credit and political risk claims in international insurance markets.

The 18 countries with worsening conditions are: Algeria, Argentina, El Salvador, Equatorial Guinea, Ghana, Honduras, Kazakhstan, Latvia, Madagascar, Mauritania, Philippines, Puerto Rico, Seychelles, Sudan, United Arab Emirates, Ukraine, Venezuela and Yemen.

“For instance, non-payment of sovereign and sub-sovereign debt obligations is a major issue for underwriters insuring risks in Ghana, and underwriters continue to experience a multitude of claims stemming from payment defaults by private sector banks in Ukraine,” explains Miles Johnstone, director of Aon’s Political Risk team.

Three countries –Sudan, Venezuela and Yemen –have been added to the Very High category, joining Afghanistan, Congo DRC, Iran, Iraq, North Korea, Somalia and Zimbabwe.

And, nine countries have been upgraded to a lower risk level: Albania, Myanmar/Burma, Hong Kong, Colombia, South Africa, Sri Lanka, East Timor, Vanuatu and Vietnam.

In addition, it’s interesting to note that there are two new icons on the 2010 map: Food and Water Insecurity.

For the past 20 years, global population growth has outpaced growth in agricultural output. Plus, many of the world’s most productive agricultural regions are expected to see a decline in productivity if temperatures rise as predicted by climate change models. Of course, disruptions like this will cause global prices to spike.

“With global warming changing regional climates and weather patterns as well as driving demand for biofuels, the world faces unprecedented food and water risks. Aon and Oxford Analytica have developed a pair of forward looking indices analyzing global food and water insecurity,” says Sam Wilkin, associate director of the consultancy practice at Oxford Analytica.

The new Food and Water Insecurity icons have been applied to the 30 most high risk countries, or those countries potentially facing the most severe food and water insecurity in the medium-to long-term. These high risk countries are all developing economies, mostly in Africa, which is in keeping with the conventional wisdom that the impacts of climate change will rebound hardest on the countries least responsible for global warming.

“Cocoa tops the 2010 Agricultural Commodity Supply Risk Index by some margin, as more than 75 percent of global production is concentrated in four countries at significant risk of supply disruption,” says Wilkin. “These threats to cocoa supplies include political instability, natural disaster and water supply insecurity.”

More details about Aon’s Political Risk Map are available here (registration required).