New York--Speakers presenting Aon's latest political risk assessment map today said there is evidence that the world is seeing increased economic and political stability.

Executives from Aon said their assessment comes at a time when U.S. corporations are becoming more concerned about how other nation's political risk can affect their trade practice.

Aon, with representatives from Oxford Analytica, a consulting firm, today presented the Aon 2006 Political and Economic Risk Map and discussed how the worldwide political climate is affecting U.S. trade, and why more are seeking risk consultants to review political and credit risk.

Compared to last year, more nations saw upgrades in their political risk evaluation over 2005, said Sam Wilkin, senior consultant for Oxford Analytica.

"Despite a lot of bad news in the headlines, the world is a lot safer to do business in," said Mr. Wilkin.

While the total number of countries considered either high risk or medium risk remains the same as last year, he noted shifts in the degree of risk.

While 130 nations are in the high-to-medium risk category, the same as last year, higher risk countries dropped from 52 in 2005 to 45 in 2006. The number of medium risk countries rose from 47 to 53 this year. Overall, there were 23 upgrades and only 10 downgrades in this year's map.

However, he cautioned, "most of the world remains a risky place to do business."

What is of growing concern to U.S. corporations, said Bryan Squibb, managing director of Aon Trade Credit, is the growing concern that political events can lead to disruptions in supply and manufacturing.

As more and more corporations turn overseas for their production and supplies, there is growing understanding and concern over how dependent these corporations are on free and open trade among the partners, he said.

A primary risk concern is to a corporation's "supply chain," said Mr. Squibb. For instance, in a worst case scenario, were a nuclear device ever discovered being imported to these shores, "how the [U.S.] government reacts and what it does"--possibly closing down the borders or limiting imports--would be a serious disruption to business.

Roger S. Schwartz, senior vice president of Aon Trade Credit, noted the risk of repatriation of assets and confiscation of profits by a foreign government of a U.S. corporation's investments has grown "in the past 20 to 30 years."

More corporations are seeking to risk transfer vehicles to "smooth the shock" from these and other event losses as financial institutions are making investments in these corporations. There is also a growing use of captive insurance operations to cover these risks, utilizing the reinsurance markets as forms of co-insurance in some cases, he noted.

Mr. Squibb pointed out that what is unique to this form of coverage is that it is "very subjective" and most often written on the basis of the corporation's commodity and supply chain. When it comes to terms, Mr. Schwartz noted the programs are often long term, which can be 5 to 10 years.

More information is available at www.aon.com/politicalrisk.

Special Reports /

Aon: World Political Risk Better, But Shifting

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