Oxford Analytica and Willis Towers Watson launch unique country ratings to measure Political Risk
New Value at Political Risk (VAPOR) geopolitical risk ratings look in-depth at country exposures based on corresponding expected loss values
Oxford, England – December 10, 2018: Oxford Analytica and Willis Towers Watson have today launched a new country political risk rating solution – Value at Political Risk (VAPOR) Ratings. They offer both investors and executives a unique rating based on a 12-month rolling outlook for the level of political risk in more than 160 countries. VAPOR Ratings anticipate unexpected market and country exposure for each country, 14 industries and five political perils from war and political violence to expropriation, sovereign default, trade embargoes and capital controls.“Exposure to political risk has become a reoccurring and material cost of doing business,” said David K. Young, CEO of Oxford Analytica. “In releasing the unique, forward-looking VAPOR Ratings, we are seeking to improve investor and corporate insight into a company’s global exposure to political risk – increasingly a matter of significant concern to Boards and shareholders alike.”
Paul Davidson, Chairman & CEO of Financial Solutions, Willis Towers Watson, remarked “In today’s uncertain business environment, political risk is increasingly a key consideration for both corporations and investors. We are delighted to be launching our new ratings for political risk. By providing a more accurate assessment of a country’s exposure to political risk and geopolitical volatility we can help businesses obtain a more precise understanding of a country’s financial wellbeing.”
VAPOR Ratings use a familiar letter grading:
- AR+ to AR- rating: extremely low to low-risk environment - investors in these countries are typically exposed to infrequent and low impact (immaterial) business risk, and are largely comfortable with concentrated exposure and passive management.
- BR+ to BR- rating: medium-risk environment - investors are typically exposed to frequent but medium impact (sometimes material) business risk. Mitigation occurs through broad based exposure and active management.
- CR+ to CR- rating: high-risk environment - investors are typically exposed to ongoing and high impact (material) business risk. Exposure in one of these countries typically requires active on-the-ground management.
- F rating: unmanageable risk environment - political risk has an outsized negative impact on the overall business environment. Risk conditions in these countries exceed the ability of institutional and corporate investors to manage the risk.
The VAPOR Ratings Quarterly presents a trio of Benchmarks for developed, emerging and frontier markets, based on a GDP-weighted average of ratings for countries in the relevant MSCI Index.
Emerging Markets Benchmark Remains at BR-, with Negative Outlook
Risk in 2019 will be higher in Turkey, Brazil and South Africa, but lower in more politically stable and domestically driven countries such as China and Poland. Turkey is at risk of being downgraded to CR+, with a recession next year probable.
Frontier Markets Benchmark remains at BR-, with risk of downgrade to CR+
Frontier Markets see an increase in risk, lying now at the very bottom of the BR- band with negative outlook, thus risking a return to a CR+ rating for the first time since Q3 2017. Frontier Markets are particularly sensitive to US rate hikes, and thus geopolitical risks are likely to have a higher than usual impact on investment.
The main catalyst for this quarter’s increase in risk was Argentina, where risks are rising across the board, except for expropriation which is stable. Argentina’s increased risk overshadows positive developments in eight other frontier markets, most notably Kazakhstan.
Developed Market Benchmark Stable at AR
The Developed Market Benchmark indicates a stable outlook for 2019, meaning in aggregate, geopolitical risks are unlikely to yield many surprises for investors. However, the United States, United Kingdom and Italy should be watched carefully.
About VAPOR Ratings
VAPOR Ratings provide global corporations and investors with a relative measure of commercial political risk for 160-plus countries. Each rating incorporates the expected losses for five types of political risk across 14 industries. VAPOR Ratings are designed to anticipate where unexpected commercial exposure will emerge, and where headline risk may conceal opportunities for well-prepared organisations. Unlike generic political risk scores, each VAPOR Rating reflects a minimum and maximum expected loss due specifically to political risk factors. The VAPOR Ratings are a public-domain adaptation of the Value at Political Risk system which draws on Oxford Analytica’s proven track record of geopolitical analysis and Willis Towers Watson’s experience at modelling risk.
Organisations requiring a more precise analysis of their geopolitical risk exposure can subscribe to other VAPOR services, including: VAPOR Online, a platform subscription service, which enables clients to monitor their annual average and probable maximum expected political risk loss on a dollar basis, and to test the effect of certain geopolitical scenarios on their exposure; and VAPOR Dataset, a data subscription service allowing clients to incorporate into their internal risk models the underlying VAPOR data comprising nearly 500k data points segmented by country, industry, peril and time period.
About Oxford Analytica
Oxford Analytica is an independent, geopolitical analysis and consulting firm that draws on a worldwide network of experts to advise its clients on their strategies, operations, policies and investments. Its trusted insights and seasoned judgements on global issues enable its clients to succeed in complex markets where the nexus of politics and economics, business and society is critical. Founded in 1975 and pioneering the industry of geopolitical risk, Oxford Analytica now works with the world’s most influential businesses, governments and international organisations.
About Willis Towers Watson
Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has over 40,000 employees serving more than 140 countries. Willis Towers Watson designs and delivers solutions that manage risk, optimise benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals.