Political Risk loss frequency surges in 2022 to become “everyone’s risk” as Ukraine war delivers widespread financial losses

Rhea-AI Summary

WTW (NASDAQ: WTW) released its 6th annual political risk survey revealing that 92% of companies faced political risk losses in 2022, a sharp increase from 35% in 2020. The report highlights significant financial impacts, particularly due to the Ukraine conflict, affecting 86% of Western European respondents and 33% of North American firms. A stark shift in political risk management is noted, with 100% of companies enhancing their capabilities since February 2022, and 68% now purchasing political risk insurance, up from 25% in 2019. Key risks for 2023 include the ongoing Ukraine crisis and economic decoupling from China. The survey, conducted in early 2023, involved 50 global companies, half of which have revenues exceeding $1 billion.

Positive

• 100% of companies enhanced political risk management capabilities since February 2022.
• 68% of respondents now purchase political risk insurance, up from 25% in 2019.

Negative

• 92% of companies reported political risk losses in 2022, indicating a trend of increasing vulnerability.
• 86% of Western European firms and 33% of North American firms experienced negative financial impacts due to the Ukraine conflict.
• A US technology company reported a loss of nearly $1 billion after ceasing operations in Russia and Belarus.

LONDON, April 18, 2023 (GLOBE NEWSWIRE) -- Nine out of ten companies have suffered a political risk loss in the past year, transforming Political Risk from a low frequency, high severity peril into “everyone’s risk,” according to How are global businesses managing today’s political risks a new report by WTW (NASDAQ: WTW), a leading global advisory, broking, and solutions company.

The 6^th annual political risk survey produced by WTW, found that a 92% of all responding companies experienced a political risk loss in 2022, up from 35% in 2020. Other findings include:

• 86% of Western European respondents reported a net negative financial impact from the conflict in Ukraine
• 33% of North American firms suffered a net negative financial impact
• 48% of respondents reported a direct political risk loss in one or more BRIC countries
• 100% of responding companies enhanced their political risk management capabilities since February 2022
• 68% now purchase political risk insurance, compared to 25% in 2019
• Nearly 50% predict deglobalization will “greatly strengthen”
• 42% say decoupling from China will “greatly strengthen”
  

The ongoing conflict in Ukraine and resultant humanitarian consequences have had a business impact that one European respondent described as “devastating”. A US technology-company respondent said: “We have decided to end all our operations in Russia and Belarus. We suffered a loss of almost $1 billion.”

Top Risks 2023, respondent mentions
Ukraine	13
Decoupling from China	12
European crisis/European rules	10
Economic nationalism	7
Serious ESG	6
US uncertainty	6
Rich-world social instability	5
Contested geopolitical alignments	4
Taiwan	4
Bigger government	4

Whatever the financial impact, the shock of war on the European continent had triggered a “paradigm shift,” one respondent said. According to an executive in the automotive sector: “Business and politics have lived in two different realities. The events of the past year have now aligned realities.”

Looking to the year ahead, Ukraine heads the list of interview panel members’ top risks for 2023, followed closely by decoupling from China and crisis and new regulations in the EU.

“Panelists were worried about the escalation of the conflict in Ukraine, but more worried about complications like sanctions and inflation,” said Sam Wilkin, Director of Political Risk Analytics at WTW. “They’re worried that they could be arrested for facilitating avoidance of sanctions, for example, or that they could be pressured to renegotiate energy contracts next autumn. At the same time, they have more profound concerns about how globalized business models can be made to work in a politically divided world.” For instance, many panelists struggled to imagine how the US-China economic relationship could be unwound without overwhelming damage to the world economy. Many companies are becoming nervous about continuing business there but are unsure about how to disconnect from such a major market. “Every day is China strategy day,” one European automotive sector panelist said.

The survey and interviews, conducted in January and February 2023 by Oxford Analytica, are based on responses received from 50 companies around the world, of which 50% have revenues in excess of $1 billion. The complete report can be downloaded here.

About WTW

At WTW (NASDAQ: WTW), we provide data-driven, insight-led solutions in the areas of people, risk and capital. Leveraging the global view and local expertise of our colleagues serving 140 countries and markets, we help organizations sharpen their strategy, enhance organizational resilience, motivate their workforce and maximize performance.

Working shoulder to shoulder with our clients, we uncover opportunities for sustainable success—and provide perspective that moves you.

Learn more at wtwco.com.

Media contact

Sarah Booker: +44 7917 722040
Sarah.Booker@wtwco.com 

FAQ

What percentage of companies faced political risk losses in 2022 according to WTW?

According to WTW, 92% of companies faced political risk losses in 2022.

What are the top political risks for 2023 identified by WTW?

WTW identified the Ukraine crisis, decoupling from China, and European regulatory changes as the top political risks for 2023.

How many companies participated in the WTW political risk survey?

The WTW political risk survey included responses from 50 companies worldwide.

What impact did the Ukraine conflict have on Western European companies?

86% of Western European respondents reported a negative financial impact due to the Ukraine conflict.

How has political risk insurance uptake changed since 2019?

The uptake of political risk insurance increased from 25% in 2019 to 68% in 2023.