In contemplating possible kinds of correlations, people often mention the “Arab Spring,” a kind of shorthand for the events that have convulsed the Middle East and North Africa over the last dozen years. But what useful knowledge have we gained from that? What is the nature of the phenomenon, how could we recognize something similar, measure it and deal with it as insurers, reinsurers or brokers? If we were looking at a global PRI/TCI portfolio a dozen years ago, would anything have told us about the potential for correlated disruption and losses in the region, and if so, what might we have done about it? Or is this just a lesson in the risks of correlated events in any particular region? What are a “region’s” boundaries? One knowledgeable expert has suggested that the effects of the Arab Spring have been felt primarily in Arab-speaking, kleptocratic, and usually brutal faux-democracies, whereas out-and-out monarchies—generally with oil revenues with which to buy the people’s loyalty and also with no need to plunder them—have been much less affected. We asked two contributors to the November 2015 edition (volume XI, issue 2) of the RW political risk newsletter to sound off:

Christian LundbladThe Arab Spring is, to my mind, merely a reminder that the set of quite vulnerable regimes requires careful analysis.  Egypt, for example, had the perception of stability right up until the end, but a peek under the veil would have revealed a country that, despite some economic progress, made little progress in developing better institutions, limiting corruption and the diversion of resources, and democratic accountability.  When a population is no longer worrying about its next meal, it may start to care about other things, and a close watch of that kind of imbalance between economic and institutional progress might give one the sense that this was inevitable.  Given that many neighboring countries shared this feature, to varying degrees of course, I’m not surprised the trigger that brings to a close an unsustainable equilibrium spills out quickly to other countries facing a similar dynamic.  Other countries, notably Saudi Arabia and, for that matter, China, continue to look very similar along these dimensions—and that continues to make me quite uncomfortable.  They have maintained a certain resilience in the face of these developments elsewhere, but they too exhibit this underlying developmental imbalance (perhaps to even greater degrees, in fact—certainly in the case of China).  Do I expect an Arab Spring like moment in Saudi Arabia or China? No, I don’t.  Yet, risk management is not what you think will happen, but what do I do if…?  The probability is certainly not zero as these unsustainable developments are present.”  — Christian Lundblad


Lila GrandaIn retrospect, I would say that some of the factors that led to the Arab Spring were income disparities, high unemployment for parts of the population—heavy economic stresses in countries without democratic institutions that provide at least some ability for the population to control its fate. Communication facilitated by social media coupled with some cultural affinity among countries in the region served as a catalyst and gave the various movements strength. The lack of systems for orderly change of government led to chaos in some places, especially given simmering social tensions previously stifled by autocratic rulers. I think the key starting point is the economic stress coupled with an autocratic government. I don’t think it matters whether it’s a faux democracy or a monarchy.

As for whether we could have predicted it, I suppose the signs were there—the similar stresses across countries—but now that it has happened, it’s easier to see the correlation and apply it to future analysis. I do this the movement for social change across a number of individual countries was a surprise.

In terms of regional boundaries, it seems they are influenced by cultural (in some cases, perhaps, religious) similarities among the population, which may or may not coincide with physical country borders. Consideration of how those borders were developed should be part of the analysis. Obviously, if they were imposed by external powers, they may actually create or exacerbate tensions among different groups who live uneasily together within those physical borders. And any autocratic regime that has undermined the possibility of orderly transition of power would seem to be vulnerable because, once overthrown, there is a vacuum.  I sometimes hear people talk about the stability that these regimes impose, but I think they are stable like a pressure cooker.” — Lila Granda (© 2015 Zurich American Insurance Company.)