Citigroup Inc. (NYSE: C) and Morgan Stanley (NYSE: MS) are among the financial institutions pushing to overhaul their risk frameworks as armed conflict increasingly disrupts global markets.
The number of countries engaged in external conflicts has nearly doubled since 2008 to just over 100, while the economic impact of violence now stands at almost $22 trillion, according to the Institute for Economics and Peace.
That figure represents more than 10% of the world’s gross domestic product, underscoring the scale of the challenge facing investors, banks, and insurers worldwide.
Wars are upending the finance industry’s ability to predict everything from the price of oil to the cost of a mortgage, forcing a fundamental reassessment of long-standing risk methodologies.
Citigroup warns against relying on “rear-view mirror” models built on historical data, while Morgan Stanley says it is time to “rethink” the status quo of geopolitical risks more broadly.
Risk consultancy Verisk Maplecroft, best known for its natural catastrophe modeling work, has released a Predictive War Index that uses a machine learning algorithm to forecast the likelihood of war in a given country over the next 12 months.
The model was trained on political, economic, and social datasets from 1995 to 2022, and back-testing showed it would have indicated a 66% probability of war breaking out in Iran roughly one and a half months before the conflict began, according to Verisk.
Sam Haynes, head of data and analytics at Verisk Maplecroft, explained the shift in demand clearly: “Instead of looking back, insurers and investors increasingly want to know what might happen and where. They want a predictive forward-looking view.”
A separate Verisk model launched in October 2023 has correctly predicted six out of seven government collapses since then, including the ouster of Bashar al-Assad in Syria and the sudden removal of Venezuela’s Nicolas Maduro in January.
Chris Boylan, a data science expert at Verisk Maplecroft, noted that in Maduro’s case “there were economic issues combined with a past history of political instability that increased the risk.”
The Rand Corporation has also developed an artificial intelligence model that converts uncertain questions such as regime change into concrete probability estimates, drawing in part on aggregated opinions from non-subject-matter experts.
Anthony Vassalo, director of the RAND Forecasting Initiative, said: “The results are designed not just to describe what might happen, but to show policymakers how specific actions — sanctions pressure, diplomatic engagement, or support for civil society — would shift those probabilities in practice.”
Krishan Sharma, senior vice president of model risk management at Citi, warned that traditional models break down because an event like a trade blockade “doesn’t behave like a standard-deviation move in a normal distribution. It changes the distribution entirely.”
Shipping disruption in the Strait of Hormuz has intensified scrutiny of global transport chokepoints, with Lloyds of London quoting marine war risk premiums as high as 1% of a vessel’s value per voyage shortly after the Iran war began on Feb. 28, according to Moody’s.
Gordon Woo, a catastrophe risk specialist at Moody’s, said modeling experts are now treating conflict scenarios like terrorist attacks, “where relatively low-cost acts can generate disproportionate economic losses.”
Tina Fordham, co-founder of Fordham Global Foresight and Citigroup’s former chief global political analyst, said the current environment is consistent with what she calls a supercycle geopolitics thesis.
“2025 saw the acceleration of the supercycle and it marked a wake-up call for the C-suite,” Fordham wrote, adding that increased risk drivers are “breaking through global guardrails and causing a higher number of geopolitical shocks.”
Morgan Stanley’s Institute described the new tools as essential for financial professionals trying to operate in “a fragmented, multipolar world” as globalization-driven efficiency fades from view.
War has now overtaken civil unrest as the source of political violence most feared by companies seeking insurance coverage, according to a risk assessment published in May by Allianz (NYSE: ALV).
Allianz concluded its assessment with a pointed summary of the new reality facing global business: “War is a rising fear for businesses around the world.”
