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Jul 2018

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Emerging geopolitical risks a top threat to financial markets - Swiss Re

Source: Asia Insurance Review | Jul 2018

Global Political Risk Risk Management

Emerging geopolitical risks are the top threat to financial markets, and one of five top emerging risk themes identified as posing the largest challenges globally in this year’s Swiss Re SONAR report.
 
The other four top risk themes are the re-emergence of asbestos (particularly in high growth markets), cyber risks, biased algorithm and the erosion of risk diversification. The identified risks are relevant to life and non-life insurance areas as well as asset management. They were identified via Swiss Re’s proprietary SONAR process, an internal crowdsourcing platform that collects input from risk experts across the company to pick up early signals of what lies beyond the horizon.
 
The risks are presented with the goal of helping industry players prepare for new scenarios by adapting their behaviour, market conduct and product portfolios.
 
Top five risks with highest potential impact:
  • A brave new world? – Emerging geopolitical risk
For emerging geopolitical risks, the SONAR report noted that a new multi-polar world is evolving in the geopolitical landscape as power drifts to Asia, democratic influences decline and the relevance of global governance institutions is eroded. Possible turmoil in financial markets and possible erosion of legal rules could threaten the running of global businesses.
  • A slow poison – the erosion of risk diversification

Broad diversification and the free flow of capital are important to running a global (re)insurance business. National protectionism and regulatory fragmentation are jeopardising the benefits of international diversification.

  • Asbestos reloaded – $100bn in losses and counting

Not all countries have banned asbestos. The UN estimates that one third of the people living in Europe are potentially exposed to asbestos at work or in the environment.

  • Coming back to bite us – lurking cyber risks
Some flaws and vulnerabilities in hardware and software may remain undetected for a long time. These dormant threats can have a very long tail risk.
  • Algorithms are only human too – opaque, biased and misled
An increasing number of business processes are driven by algorithms. Often, algorithms are portrayed as being objective, without human bias. But algorithmic applications are not infallible and are based on human judgment as well. Discriminatory bias may also translate into defective modelling and prediction, bringing a two-fold risk to insurance and other industries. A 
 
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