Depression remains the top extreme risk, followed by sovereign default and hyperinflation, according to Towers Watson.

The consultancy has listed the top fifteen extreme risks by using a subjective scoring system to derive a ranking of these risks, and the change of ranking reflects a change of view regarding both impact and likelihood of each individual risk.

On fourth place was a banking crisis, followed by a currency crisis and climate change. The chances of a political crisis and insurance crisis have increased, as both have gone up one place, respectively to seventh and eight place.

Protectionism takes ninth place, while a euro break-up is the tenth biggest extreme risk. These are followed by resource scarcity, a major war and the end of fiat money. At fourteenth and fifteenth place, infrastructure failure and a killer pandemic make up the list.

In Extreme Risks – the 2011 update, Towers Watson has taken into account the disappointing economic recovery in the developed world during the past two years, which it believes increases the likelihood of further economic shocks.

Tim Hodgson, head of Towers Watson's Thinking Ahead Group, said: “The global economic environment continues to be characterised by significant imbalances and consequently is not in good shape to withstand any further major shocks. This ranking lists a number of concerns that could disrupt the recovery and long-term economic developments and aims to help asset owners consider and manage their investment risk beyond the conventional VaR95 level.

“It should however be noted that even with the best analysis, we will not be able to anticipate all risks. While we have a list of 15 extreme risks, by definition they are ‘known unknowns’ and what might harm asset owners even more are the ‘unknown unknowns’. The important thing is to build our ability to adapt and learn, enhancing the resilience of the system.”

Share Story: