Citigroup warns that relying on traditional ‘rear-view mirror’ models built on historical data may leave banks exposed to modern conflict risks as Wall Street adopts Verisk Maplecroft’s Predictive War Index. Back-testing showed a 66% probability of Iran war within two months, prompting model reevaluations.
Wall Street is integrating forward-looking catastrophe methodologies into geopolitical risk assessment as the economic impact of global conflicts has surged to nearly $22 trillion, over 10% of world GDP. Verisk Maplecroft’s Predictive War Index uses machine learning trained on political, economic and social data from 1995–2022 to forecast 12-month war probabilities for individual countries.
Citigroup cautions that legacy risk frameworks based on historical conflict data may fail under rapidly evolving geopolitical tensions. The bank and other financial institutions are reassessing credit risk models and insurance-linked products, considering integration of predictive analytics to better anticipate events like the Iran war scenario flagged at 66% probability in back-testing.
