Political Risk and the Supply Chain

Every global risk manager is finely attuned to the weather, given the potentially devastating impact Mother Nature can have on supply chains. But another kind of storm can unravel international operations—one that effects the political climate.

As this year’s events in Ukraine have vividly demonstrated, formerly stable political regimes can quickly falter and fail. Even a staunch ally like Egypt, once a safe destination for tourists, can become a questionable place to do business in an instant. Economic factors like rising interest rates in the United States can also create political and economic havoc in emerging countries that have thus far benefited from record-low borrowing rates.

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Coping with Black Swans

The insurance and reinsurance industries are in business to take bets on risks that can be identified, assessed, prioritized and planned for financially. Disasters like hurricanes, earthquakes, massive asbestos-like litigation and even terrorist attacks fit the bill. But what about so-called Black Swan events?

A Black Swan is a disaster or series of cascading disasters that no one saw coming—hence there was no way to identify, assess, prioritize and plan for the impact. The term apocryphally derives from the settlement of Australia by the British, who had seen white swans before but never a black one.

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The Upside of ‘Surge Pricing’ at Uber

The company is criticized for jacking up prices during periods of high demand but economists say that they are simply letting data on market conditions dictate pricing.

This past winter, Jerry Seinfeld’s wife Jessica earned her 15 minutes of fame, fuming over the $415 she reportedly paid to Uber to chauffeur her kids to a bar mitzvah, a price much higher than she had previously paid to get from here to there. Seinfeld famously posted a photograph of the receipt on Instagram, accompanied by the hashtags #neverforget and #neveragain. Leaving aside for the moment that the Seinfelds are faring fine financially, Jessica neglected to mention the upside of Uber’s surge pricing, as this practice is pejoratively called. Case in point — the $41 it cost me to ride Uber from my house to LAX last week, and the $72.16 it cost to taxi back. Uber’s prices jack up and down for basic supply-and-demand reasons. When demand for a ride is high and supply is low, as it is during a blizzard, prices rise. When the opposite holds true, they fall, although no one Instagrams their delight. Experts say this model heralds a new era made possible by access to data and more advanced analytics.

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Music Industry Uses Big Data to Track Royalties

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The music industry has changed dramatically in the last couple decades, except for one domain — how television, film, video game and other producers of creative content license music tracks. Now, thanks to data analytics, APM Music believes that it has found a way to improve the system by enabling customers, who include major entertainment studios, to access musical tracks more easily from the Los Angeles-based company’s huge library.

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How Data Analytics make Red Sox Fans Happier

For any baseball team, making the World Series is a pretty dependable way to boost revenue. But when the Boston Red Sox seemed a long fly ball from this goal, the team still had something else going for it other than slugger David Ortiz: big data analytics.

The Sox have implemented several cloud-based technologies from providers such as Host Analytics, MicroStrategy and Microsoft Dynamics to slice and dice data on ticket sales, as well as revenue from merchandise, food and parking. The tools also help the company reduce expenses, by pinpointing how many ticket takers, ushers and security personnel it will need for a particular game or game series, based on past experience.The World Series champs access voluminous structured and unstructured game data on the weather, the opposing team, the day and time of the week and various pre-game promotions. Algorithms let then the team forecast how best to allocate resources based on expected fluctuations in demand.

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EVA and the Private Company

Every company seeks the perfect measurement quantifying its performance against strategy. Historically, the corporate world has relied on an alphabet soup of acronyms—EPS, ROE, ROI, EBITDA and TSR, to cite a handful—for this guidance, employing these metrics to make key decisions on resource allocation, expense management and incentive compensation. In recent years, public companies have increasingly turned to an alternative method—Economic Value Added (EVA), prized as a more accurate measure of how companies perform for shareholders than many of its peers in the metrics game. Now private companies, as well, are finding favor with this metric.

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Reinsurance Causes Investor Feeding Frenzy

IG_Feature_15_RB_ReinsuranceCapacity80-resize-380x300Property catastrophe reinsurance is causing a feeding frenzy for investors as they seem extremely willing to plunk their money into an alternative investment that does not correlate with their other portfolio bets.

The tens of billions of dollars flowing into the reinsurance industry are being funneled into securities including catastrophe bonds and other insurance-linked reinsurance investments. This bountiful capacity augments traditional sources in the venerable reinsurance industry, although even reinsurers are creating the collateralized securities and selling them to investors. For buyers—primary insurance companies the world over—the lines are blurred insofar as who is taking the reinsurance risk.

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