Political Risk

Managing Risk Amid Turmoil

Insurers and brokers are developing unique tools to help insureds stay ahead of global political risks. 
By: | December 14, 2015 • 7 min read

Multinationals and their supply chains are continuing to be challenged by political upheavals, from ISIS to Europe’s refugee crisis, to growing territorial rifts over shipping lanes in Asia.


To help risk managers better assess exposures, insurers, brokers and specialty firms are offering sophisticated tools to monitor the impact of political turmoil on various geographies and industries.

Such tools are becoming critical as an unexpected crisis can pop up virtually overnight, said Yoel Sano, head of political risk at BMI Research in London, part of Fitch Group. The research firm offers “Total Analysis,” an online platform containing the firm’s forecasts, analysis and data.

“It’s becoming increasingly clear that seemingly obscure things can emerge quite quickly as a big thing — in 2014 we saw the rise of ISIS in Iraq and Syria and also the conflict in eastern Ukraine,” Sano said. “Hardly anyone was paying attention to these events beforehand, and suddenly they were center stage. I think the overall speed of world history has increased over the past generation thanks to the internet, especially social media, and one aspect of that is a sudden increase in risk.”

Yoel Sano, head of political risk, BMI Research

Yoel Sano, head of political risk, BMI Research

Organizations seeking to build facilities or acquire companies in foreign markets are often there for the long haul and need to be fully cognizant of what they are getting into, he said.

“Investors don’t like uncertainty — they like to know what’s going to happen,” Sano said. “Sometimes uncertainty is worse than the event itself.”

BMI also analyzes how political decisions could likely affect economics and financial markets, such as the recent Trans-Pacific Partnership multinational trade agreement. Moreover, the firm also outlines alternative scenarios on risks that may not be apparent, “so that our clients are not ‘caught in the headlights.’ ”

Tools Emerging

The Hostile Environment Liability Protection (HELP) program — a consortium led by Beazley Syndicate at Lloyd’s that provides risk mitigation, crisis response and insurance for “hostile or complex environments” — recently added an “Intelligence Panel” consisting of three risk and strategic consultants firms, G4S Risk Analysis, Contest Global and Aegis Advisory.

London-based Contest Global helps clients “manage every aspect of their intelligence operations,” whether it is collecting new and hard-to-access information, analyzing data by applying the latest structured analytical techniques, or generating intelligence judgments designed to inform real-world decision-making, said Chris Mackmurdo, founding director.

For instance, this year the firm has been helping a number of banks in London come to grips with the risks presented by ISIS in Syria and Iraq, he said. A major factor is the issue of illicit oil connected with ISIS-controlled oil facilities in the region.

Chris Mackmurdo, founding director, Contest Global

Chris Mackmurdo, founding director, Contest Global

“There are sanctions in place that will punish anyone involved in trading or otherwise moving oil products connected with ISIS, which presents a serious challenge to banks and any company within the oil supply chain,” he said.

“The onus is on them to devise strategies to mitigate their exposure to these risks and protect themselves against any operational and reputational damage.”

Mitigation takes certain steps. Organizations must be able to collect information from multiple sources to identify any immediate or potential problem. They must also have in place a process to analyze, assess and prioritize risks based on the information available, “which will never be complete.”

They must develop risk mitigation strategies and communicate them to all stakeholders involved in implementing them, from strategic through tactical and operational personnel. Finally, they must monitor the effectiveness of their processes and strategies, refine requirements and adapt to change quickly.


The key for risk managers is being able to communicate intelligence data to decision-makers effectively, Mackmurdo said.

“You can have all the tools in the world, but unless you can influence the people making decisions, you aren’t going to change people’s minds and behaviors — so how you present the information is crucial,” he said.

Hart Brown, head of organizational resilience at HUB International, said that things often come up that clients had not anticipated prior to market entry, whether they’ve inherited operations or chose to speedily go into a market to capture market opportunity and later evaluate the risk.

While some companies are eager to take on political risks, the challenge is managing them.

Hart Brown, head of organizational resilience, HUB International

Hart Brown, head of organizational resilience, HUB International

“For example, in Asia, there is a concern about China … about the expansion of territorial waters that it is claiming, wanting to control certain shipping lanes throughout that region,” Brown said. “This can impact the flow of goods within a company’s supply chain, especially if there is a military buildup, which could very easily result in an accidental collision and overreaction.”

There is no one way to evaluate those risks, and in many cases, there is enough uncertainty that the analyses can be very different, Brown said. “A lot of art goes into it, along with some science.”

HUB starts by creating a risk assessment, quantifying first what a company is already experiencing within a certain market. Risks assessed include governance within that country, the business environment within that area, issues related to conflict and security, labor and economic issues within that space, and also challenges related to cyber crime.

HUB creates scorecards and dashboards to help the client understand those risks. Then it establishes the key things that clients need to monitor and include in a protective intelligence program.

“We give them analysis in a timely enough fashion to avoid potential disruption within their supply chain,” Brown said. “If we see the political climate beginning to change, clients can proactively ship material faster than they normally would.”

Actionable Intelligence

Visualization and analytics play increasingly important roles in such analyses, he said. HUB takes the intelligence it gathers and puts it on a supply chain map, overlaying the risks in a way that’s easy to see and “more impactful.”

The firm is also using analytics of sources including social media and news reports.

“We’re able to map out, in many cases, what’s going on and do a trend analysis, pinpointing the date and time when a disruption is going to occur,” Brown said.

Aon Risk Solutions provides clients with a global interactive map, designed to allow clients “to get a pretty good snapshot of what the world is like at this point in time,” said Roger Schwartz, New York-based senior vice president and political risk practice leader at Aon.

“Clients who have used this map may not have realized a particular country’s risks, which induced them to do more research on whether they need to get more coverage for their subordinates operating in that country,” Schwartz said.

For example, a recent snapshot of Venezuela on the map stated that the country “continues to have elevated risks in all areas, with particularly high exchange transfer, legal and regulatory risk ratings.”

“Structural issues and government mismanagement leave Venezuela very vulnerable,” according to Aon’s snapshot. “Sovereign non-payment risks have increased as lower oil output and revenue have weakened Venezuela’s cash flow and reduced its ability to pay its sizeable debts. Venezuela’s exports of crude oil have fallen in volume due to government interference and underinvestment.

“Although default on international sovereign debt is still only a risk scenario, arrears to local and global companies are rising, consistent with Venezuela’s high sovereign non-payment risk. After years of high levels of government interference, political violence and protest is rising due to food shortages. The current exchange rate mechanism is not functioning, and capital controls are hitting production.”


The interactive map also contains a variety of tools, including an “Exposure Calculator” and “Country Analysis Tour,” to compare risks in different areas, as well as a rate tracker and pricing model, to help clients determine what the costs of risks are going to be.

Aon also provides “Portfolio Manager,” a web-based tool that monitors a client’s portfolio of exposures including amortization, providing historical, current and future in-depth analysis of country, obligor and counterparty exposures.

“We are one of the very few brokers that have this in-depth tool kit, and we also work with them to determine solutions that are appropriate,” Schwartz said.

Still, “multinational corporations operating in emerging markets have access to any number of tools, and the service we provide helps them identify and manage risk, but it’s not intended to be a stand-alone service.”

Katie Kuehner-Hebert is a freelance writer based in California. She has more than two decades of journalism experience and expertise in financial writing. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.


Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.

R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.


We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?


Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.


Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now an where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.


More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]