Credit Crisis Fallout Still Boosting Global Risk

The aftereffects of the credit crisis are still contributing to increased risk in countries around the world, according to a report compiled every year by insurance brokerage and risk management consultancy Aon and Oxford Analytica.

The 2010 report downgrades 18 countries on the grounds that activities there entail greater risks and upgrades nine countries to lower risk levels. In 2009, Aon downgraded 18 countries and upgraded 13.

In a continuation of the trend seen in 2009, "fallout from the global financial crisis continues to manifest itself in increased levels of political instability," says Miles Johnstone, director of Aon's political risk team.

Johnstone cited as typical the downgrade of Latvia, where an economic crisis and huge loan losses at banks have led to political protests and fears the government will collapse. Johnstone also noted the downgrades of Ghana, where state-run oil refineries defaulted on debts in both 2008 and 2009, and Yemen, where insurers have seen multiple claims for damage to foreign-owned assets in Northern Yemen as a result of political violence.

Six of the 2010 downgrades were of African countries. Africa "is still the most politically unstable continent," says Roger Schwartz, senior vice president of Aon Trade Credit.

Sam Wilkin, associate director of the consultancy practice at Oxford Analytica, said the credit crisis had boosted the levels of sovereign non-payment risk, exchange transfer risk and political risk.

The 2010 upgrades include Albania, which was cited for progress in tackling crime; Myanmar, whose finances have improved thanks to surging natural gas sales; Sri Lanka, whose long civil war has ended; and Vietnam, the best-performing economy in Asia.

For the first time in 2010, Aon and Oxford are assessing the likelihood of food and water insecurity in the riskiest countries. Schwartz warns that agricultural commodity prices could repeat the run-up seen in 2007 and 2008 once economic growth revives. "Supply risk could become greatly exacerbated if there's a step-up on supply pressures," he says.

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