Ukraine Invasion to Likely Have ‘Substantial Impact’ on Insurance Industry

AM Best says Russia’s invasion of Ukraine could add to inflationary pressures and have a major impact on the global insurance industry.

The rating agency Friday said efforts by the global central banks and the U.S. Federal Reserve to contain inflation will be challenged. Plus, sanctions may have “severe knock-on effects” on oil and commodity prices as well as tourism and the economies of some of the world’s less resilient countries.

AM Best called sanctions a “two-way street.” For instance, the U.K. and other European countries rely on Russia for gas, and there “is a very real concern that prices will skyrocket from already elevated levels.”

“Further sanctions may make it more difficult for international insurers and reinsurers to underwrite Russian risks or to service claims on existing policies,” said Anna Sheremeteva, AM Best financial analyst. “Those who write large energy and infrastructure risks, such as London Market insurers and international reinsurers, would be most affected.”

Foreign insurers that have reinsurance with Russian carriers may have recovery difficulties due to the invasion, said AM Best’s commentary.

“Sanctions also will affect the balance sheets of Russian insurers and their relationships with international partners,” added Todor Kitin, financial analyst. “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. On the other side of the balance sheet, higher-than-anticipated inflation would impact claims costs, with potential implications for the adequacy of reserves.”

Cyber attacks are also more likely to occur as a result of escalating conflict. AM Best said: “Higher risk perception could result in higher prices in an already hardening market.”

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