Ukraine invasion may 'substantially impact' insurers: AM Best

Russia’s invasion of Ukraine may have a substantial impact on global insurers, pressuring balance sheets, adding to inflationary pressures and affecting underwriters of large energy and infrastructure risks and reinsurers, ratings agency AM Best says.

Heightened risk perception could lead to higher cyber prices in an already hardening market, and an escalating conflict may increase the risk of a systemic cyber attack with substantial losses.

Insurer balance sheets will be pressured as bond spreads widen and equity markets become more volatile, AM Best says, while imposed economic sanctions may have severe knock-on effects on oil and commodity prices, as well as tourism, and hurt less resilient economies.

“Further sanctions may impact the ability of international (re)insurers to underwrite Russian risks or make it more difficult for them to service claims on existing policies,” AM Best said.

Most affected will be those writing large energy and infrastructure risks, business that has been historically “highly profitable,” and international reinsurers. Sanctions targeting individual companies and investors may lead to reallocations of market share between affected insurers and other companies in the market, while foreign insurers that have reinsurance with Russian carriers may struggle to achieve recovery, and carriers that depend on hedging to manage exposure could experience high hedging costs.

“Higher-than-anticipated inflation would impact claims costs, with potential implications for the adequacy of reserves,” AM Best says.

Any restrictions on the availability of international insurance capacity would lead to higher concentration of risks, particularly large energy and infrastructure risks.

A withdrawal of international reinsurance capacity would require greater involvement by the Russian National Reinsurance Company, established in 2016 by Russia to provide reinsurance capacity for insurers subject to foreign sanctions.

Countries with deep trade and financial ties with Russia, including Cyprus, Estonia, and Germany, will feel the impact of the sanctions “more acutely”.