Ukraine invasion to have ‘substantial’ impact on re/insurance industry, warns AM Best

The invasion of Ukraine will likely have a “substantial impact” on the global re/insurance industry in the near to midterm, with potentially “severe knock-on effects” due to the new sanctions imposed by the European Union against Russia, ratings agency  AM Best has warned.

Citing “significant fallout” in the capital markets and potential for widespread cyberattacks, AM Best expects the escalating global conflict to cause “substantial economic and insured losses”.

Ukraine’s invasion has had an immediate negative impact on the stocks markets worldwide; continued volatility remains likely, challenging efforts by the global central banks and the US Federal Reserve to contain inflation, Best said.

The agency also highlighted that the sanctions imposed against Russia may have severe knock-on effects on tourism, as well as the economies of some of the world’s less resilient countries.

“Further sanctions may impact the ability of international insurers and reinsurers to underwrite Russian risks or make it more difficult for them to service claims on existing policies,” said Anna Sheremeteva, financial analyst at AM Best.

“Most affected would be those writing large energy and infrastructure risks, such as London Market insurers, and international reinsurers,” Sheremeteva noted.

According to another financial analyst Todor Kitin, these sanctions will also affect the balance sheets of Russian insurers and their relationships with international partners.

“The valuation of investments would be affected by a prolonged equity market downturn, any increase in the Russian Central Bank’s policy rate or a widening of credit spreads,” said Kitin.

“On the other side of the balance sheet, higher-than-anticipated inflation would impact claims costs, with potential implications for the adequacy of reserves.”

Additionally, the report noted that “heightened risk perception could lead to higher prices in an already hardening cyber market”.

Major insurance and reinsurance players, including Swiss Re, Munich Re, AXA and Liberty, have so far indicated that they are likely free from excessive exposure to Ukrainian and Russian business, or that their exposure is “not material at the group level”.

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