Page 39 - The Insurance Times January 2022

€ poor quality/quantity of data – lack of
transparency;
€ state control of large parts of the economy
€ small or no stock exchange while those that exist
are heavily influenced by trading in a few stocks;
€ limited amount of stock in public hands;
€ few large conglomerates operate in many sectors
– including banking;
€ limited tax base – tax avoidance common;
Pull and push factors have combined to increase the level
of interest in emerging economies as target markets as well
as production bases.

Risk types in emerging economies g) Technology
a) Business € technology in use may be outdated and difficult to
€ Whole range of issues make emerging economies maintain
more volatile and unpredictable so companies which h) Outsourcing
are not well managed and robust financially will be € if contracts have little meaning this may increase
vulnerable. risk considerably if service standards are not met;

b) Credit i) Fraud
€ lack of transparency, limited disclosure (accounting € Heightened vulnerability particularly where
risk) management has limited understanding of local
€ counterparties unwilling to share information practices or there is collusion amongst staff;
€ inter-connected businesses common j) Processes and procedures
€ Need to be adapted to local conditions including
c) Credit–sovereign
compliance with local regulations
€ credit risk of the sovereign entity will generally be
well known. It may be weak due to dependencies k) Accounting
on external factors such as exports, investment € Accounting standards weak, income sources and
inflows or poor management of income and profits often understated
expenditure.
l) Political
d) Market € Power tends to be concentrated and is open to
€ exchange rates and interests rate liable to move abuse even in nominally democratic countries
significantly and with little warning;
m) Environmental
€ two tier exchange rates may operate (official and € Lower standards or non-enforcement may reduce
black market); environmental risks but this is changing and poor
€ pegged exchange rates, currency boards or practices today may store up problems for the
crawling peg mechanisms may operate but limited future
resources to defend them leaves them vulnerable
n) Legal
to speculation.
€ Problems can arise through a lack of understanding,
e) Liquidity unclear requirements, lack of enforcement or laws
€ often high degree of reliance on central bank which not being in place
may have limited resources, particularly in time of
o) Systematic
need.
€ Increased interconnectedness with the outside
f) Operational Staff world as trade barriers are removed and
€ quality and quantity of staff will vary enormously deregulation occurs creating opportunity but make
as will work ethic and time keeping emerging economies more vulnerable.

The Insurance Times, January 2022 39