Summary

Regional overview of political risksMiddle EastWhile no MENA country recorded a change in country risk rating this quarter, the pattern of outperformance of financially sounder and oil-rich Golf Cooperation Council (GCC) states continues. We picked up some improvements in Saudi Arabia’s institutional capacity. Continuing protests in Egypt reinforce its high risk country risk rating. Oman, one of the poorer GCC states began to show some signs of strain as its fiscal position is deteriorating, affecting its institutional capacity. Finally, Libya saw an increase in its already very high levels of Political Violence, which largely offset reductions in economic risks, such as Exchange Transfer and Sovereign Non Payment.

Latin America

Only Cuba, where reform is stagnating, showed much sign of deterioration. Political risks continue to be relatively stable across the region, though forthcoming elections in Brazil could perpetuate the risk of government interference in key sectors. Elsewhere, in Mexico and Peru, recent efforts to open up the energy sector reflect improvements in institutional and political capacity.

Sub-Saharan Africa

Political risks remain high in this region, albeit stable. Eritrea and Mozambique both experienced some

increase in political instability which undermines government effectiveness. The instability is likely to delay some aspects of the resource sector development in Mozambique, but it is nonetheless on an improving track. By contrast Ivory Coast showed some improvements in Legal & Regulatory and Political Interference risks, as the effects of the 2010 coup wear off.

AsiaAside from Pakistan, most Asian countries showed an overall reduction in political risk. However this was not enough to bring about change to any country risk rating scores. Indonesia’s recent trends continue to be mixed with some improvement in Exchange Transfer risk but some deterioration of government effectiveness, and corporate governance.

Eastern Europe and CIS

Aside from Ukraine, no Eastern European state saw a marked change in Country Risk Rating score. Moldova, which continues to move closer to the EU, showed some signs of improvement in political stability and control of corruption. However, Russian economic retaliation to the EU-leaning path risks Sovereign Non Payment and Exchange. Transfer issues, while the regulatory environment has a lot of room for improvement

Political Risk country rating scores were relatively stable in Q4 2013, with only two countries, Philippines (improver) and Ukraine (worsening) justifying a change in overall score, much fewer than in the previous quarters.

Nonetheless several countries experienced a change at risk icon level, all of which could be a signal of future changes at an aggregate level:

� Cuba

� Eritrea

� Mozambique

The relative stability in the scores at year-end may reflect the stabilisation and the gradual improvement in global economic conditions which may help to ease many of the political risks relevant for investors.

However, there has been a general pattern of increasing political risk over the last three quarters and the issues we noted last quarter including a busy election season, tightening global financial conditions and structurally slowing growth in the emerging world, remain in place, risking new measures that could hurt foreign investors.

Political RiskQuarterly newsletter

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� Ivory Coast

� Saudi Arabia

� Moldova

Q4 2013 Complementing the annual Political Risk Map, Aon’s political risk newsletter is developed in partnership with Roubini Global Economics, an independent, global research firm founded in 2004 by renowned economist Nouriel Roubini. The newsletter is released on a quarterly basis and provides insight into levels and types of Political Risk in non EU and OECD countries.

Contents

Summary

Regional overviews

Country risk ratings overview

Risk icon focus:

� Political Interference

� Risk to Fiscal Stimulus

Under the spotlight: South Africa

For more information, please contact:

Aon Crisis Management Matthew Shires

Head of Political Risks matthew.shires@aon.co.uk

Prateek Singh Head of Political

Risk Analytics prateek.k.singh@aon.co.uk

Roubini Global Economics Giles Patterson

Head of Sales, EMEA giles.patterson@roubini.com

Aon Risk Solutions

Aon Risk Solutions | Crisis Managament >> Political Risk Newsletter, Quarter Four 2013 page 1

Risk Icon Focus: Political Interference

We consider the following factors in this Icon:

� Social risk: is there social pressure that may cause governments to consider intervention?

� Political and government institutions: Are there effective legal and regulatory obstacles to prevent interference?

� Business environment: is the economy dynamic thereby creating an escape valve for these tensions?

Social pressure combined with weak rule of law and a rigid business environment creates high risks of political interference. While Political Interference may be present in many types of countries, those

with extensive resource wealth tend to be more prone to such developments as different political actors jostle to distribute the related rents.

The risk of Political Interference is rated high or very high in 94 countries and territories, including Algeria, Bolivia, Cameroon, Egypt, Kenya and Moldova.

This quarter saw further deteriorations in Guinea Bissau, Burkina Faso, Mauritania and Tanzania. Meanwhile, there has been a slight reduction in Political Interference risk in Belize, Bosnia, Nicaragua and Panama.

Political Interference is a

risk rated high or very high in

94 countries and territories.

The Risk to Fiscal Stimulus

is present in 95 countries and

territories.

Risk Icon Focus: Risk to Fiscal Stimulus

To begin with, a government needs to have the economic capacity to pay (access to capital). Governments with low fiscal deficit, low fiscal debt, and sufficient official foreign exchange reserves are able to increase fiscal spending when it is needed. We also consider, if the government has money to spend, whether it can spend the money effectively and transparently. Hence we also take into account government effectiveness and rule of law. Countries without such institutional strength are likely to fail in the net result, which results in more corruption and in many cases inflation.

The Risk to Fiscal Stimulus is rated medium high or above in 95 countries and territories including Argentina, Cambodia, Morocco and South Africa. With the notable exception of Afghanistan this quarter, we have seen improvement in many countries. For instance, Botswana, Jamaica, Lebanon and Liberia have strengthened their ability to stimulate the economy with fiscal spending, reflecting both institutional improvements and stabilization of growth which improves fiscal revenues.

The Political Interference Icon measures the risk of host government intervention in the economy or other policy areas that adversely affect overseas business interests such as nationalisation and expropriation. Political Interference is more likely to happen in countries with high social conflict, weak political institutions and significant regulatory barriers to business activities.

The Risks to Fiscal Stimulus Icon measures the risk of the government being unable to stimulate the economy due to lack of fiscal credibility (extensive debt or deficits) declining reserves, high debt burden or government inefficiency. Introduced in 2013, this risk icon is not part of the aggregate scores for country risk rating, but it can be used alongside the aggregate scores to assess operating risks for the country. Often an inability to stimulate can go hand in hand with Sovereign Non Payment risk as both reflect ability and willingness to meet these spending needs.

Improvement to country risk rating:

à Philippines: Medium from Medium-High.The Philippines has been on an improving track in recent years. The reduction in political risk has been broad-based and reflects lower levels of Political Violence, largely as a result the renewed peace process with Moro Liberation front, improvements on the Legal and Regulatory risk, as well a reduction in Political Interference risks and Banking Sector Vulnerability.

Deteriorations in country risk rating:

Ä Ukraine: The country risk rating is increased from Medium High to High largely due to higher levels of political violence and exchange transfer risk. Ukraine’s current move towards Russia and rejection of the EU Association Agreement potentially removes the positive catalyst for institutional reform. Possible trade retaliation from Russia increases the Exchange Transfer risk as the government tries to maintain its overvalued currency.

Country Risk Rating Overviews

page 2 Political Risk Newsletter, Quarter Four 2013 << Aon Risk Solutions | Crisis Management

The South African population is losing faith with the ruling African National Congress (ANC) and strike-induced disruptions across most of the key sectors of the economy have hit economic activity and policy implementation risks. Political disunity even within the various groups of the ruling party and vested interests block the administration from passing and implementing necessary reforms (addressing energy supply concerns, improving service delivery), with policy paralysis deterring much-needed investment. Meanwhile sector-level strikes are not only increasing labor costs and fuelling inflation but also adding to business uncertainty.

Leadership is struggling to convince

The strikes, which have plagued the mining sector, as the wealth gap widened, spread to other industries, weighing on labor productivity and competitiveness. The leadership’s lack of vision, hesitant response to strikes, threats of greater government intervention, excessive labor regulation and unionization are all add to economic underperformance. This in turn increases political risk as the population fears the government can not deliver on its promises. These trends further increase the uncertainty of policy implementation, risking project delays and increasing the chance of Political Interference. All these trends contrast with South Africa’s generally stronger institutions than its BRIC/emerging markets peers.

ANC popularity in decline

President Jacob Zuma’s approval levels fell to its lowest ever of 41% in February, with youth particularly critical of government policies, especially patronage and cronyism. Despite some improvement in key regions, including Gauteng, which is an area where Zuma historical lacks support, the ANC will face a tougher time in the March 2014 election. This stems from persistent intra-alliance tensions, public spending controversies and the recent policy shift within the ranks of the opposition Democratic Alliance, which could earn it votes among the young, black population. Despite this, Roubini Global Economics believes ANC will be re-elected in 2014 for another 5-year term, possibly with a below-60% parliamentary majority. The victory doesn’t mean accelerated progress on areas of reform necessary to reverse the slide in potential growth and deal with rising unemployment, poverty, inequality, which have amplified political risk. As the country reflects on the passing of its most respected figure, former president Nelson Mandela, the policy options on offer no longer resonate with the overwhelmingly disillusioned population, a trend that will keep the political environment less stable and raise risks for foreign investors.

Under the spotlight this quarter: South AfricaSouth Africa is one of several countries where economic and political risks have been self-reinforcing and government is struggling to tackle political risks and revive growth. Although South Africa’s aggregate Country Risk rating remains Medium and has not fallen like its peers (Brazil, India and China), several of the individual risk icons are approaching the downgrade

mark. The increase in Political Interference merits particular concern given that South Africa stands out as being vulnerable to global monetary tightening given its reliance on international capital.

Aon Risk Solutions | Crisis Management >> Political Risk Newsletter, Quarter Four 2013 page 3

Our core risk icons

Country rating on the map derives from nine risk icons, which represent insurable risk:

Coming soon...

Roubini Global Economics (RGE) was founded in 2004 by Professor Nouriel Roubini. Through his national balance sheet approach to analysing economies, Nouriel Roubini foresaw the coming US housing crisis and was eager to bring the same approach to analyse the rest of the world. Now numbering nearly 100 staff around the world, RGE’s mission is to produce macro analysis beyond the consensus view to influence investment decisions around the world. RGE works with clients in a series of different ways, from macro strategy subscription product, to bespoke work, multi-client conference calls, direct access to analysts, and the licensing of its systematic country risk analysis tool. For further information on Roubini Global Economics, please visit www.roubini.com.

About Roubini Global Economics

Risk to fiscal stimulus: the risk of the government not being able to stimulate the economy due to lack of fiscal credibility, declining reserves, high debt burden or government inefficiency.

Exchange transfer: the risk of being unable to make hard currency payments as a result of the imposition of local currency controls.

Sovereign non payment: the risk of failure of a foreign government or government entity to honor its obligations in connection with loans or other financial commitments. This risk looks at measures of both ability and willingness to pay, including fiscal policy, political risk and rule of law.

Political interference: the risk of host government intervention in the economy or other policy areas that adversely affect overseas business interests; e.g., nationalization and expropriation. This risk is composed of various measures of social, institutional and regulatory risks.

Supply chain disruption: the risk of disruption to the flow of goods and/or services into or out of a country as a result of political, social, economic or environmental instability.

Political violence: the risk of strikes, riots, civil commotions, sabotage, terrorism, malicious damage, war, civil war, rebellion, revolution, insurrection, a hostile act by a belligerent power, mutiny or a coup d’etat. Political violence is quantified using measures of political stability, peacefulness and specific acts of violence

Legal & regulatory: the risk of financial or reputational loss as a result of difficulties in complying with a host country’s laws, regulations or codes. This risk comprises measures of government effectiveness, rule of law, wider property rights and regulatory quality.

Risk to doing business: the regulatory obstacles to setting up and operating business in the country, such as excessive procedures, the time and cost of registering a new business, dealing with building permits, trading across borders and getting bank credit with sound business plans.

Banking sector vulnerability: the risk of a country’s domestic banking sector going into crisis or not being able to support economic growth with adequate credit. This risk comprises measures of the capitalization and strength of the banking sector, and macro-financial linkages such as total indebtedness, trade performance and labor market rigidity.

About AonAon plc (NYSE: AON) is the leading global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 65,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative and effective risk and people solutions and through industry-leading global resources and technical expertise. Aon has been named repeatedly as the world’s best broker, best insurance intermediary, reinsurance intermediary, captives manager and best employee benefits consulting firm by multiple industry sources.

Aon’s 2014 Political Risk Map

More than 15 years of data at the push of a button. One of the longest standing political risk platforms in the industry.

The 16th edition of the Political Risk Map will be released in March 2014.

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