Russian sanctions could challenge London market energy and infrastructure writers
Continued volatility and the threat of more sanctions will add to a fluid situation, AM Best warns
Russia’s invasion of Ukraine is likely to have a substantial impact on the global insurance industry in the near to medium term, particularly given the significant fallout in the capital markets and potential for widespread cyber attacks, AM Best said.
The conflict may have an adverse impact on the balance sheets of Russian insurers and additional sanctions could limit reinsurance options, the rating agency said.
Further sanctions may also affect the ability of international re/insurers to underwrite Russian risks, with the most affected being those writing large energy and infrastructure risks and reinsurers, it added.
In addition, a withdrawal of international reinsurance capacity would require greater involvement by the Russian National Reinsurance Company, the state-owned reinsurance company that was set up in 2016 to provide reinsurance capacity for insurers subject to foreign sanctions.
Sanctions targeting individual companies and investors may lead to reallocations of market share between affected insurers and other companies in the market.
“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,” Anna Sheremeteva, financial analyst at AM Best, said. “Most affected would be those writing large energy and infrastructure risks, such as London market insurers, and international reinsurers.”
AM Best also warned the impact of an escalating global conflict may increase the risk of a systemic cyber attack and cause substantial economic and insured losses.
Heightened risk perception could lead to higher prices in an already hardening cyber market.
The invasion has already had an immediate negative impact on stock markets worldwide. Continued volatility remains likely, challenging efforts by the global central banks and the US Federal Reserve to contain inflation.
The rating agency said significant increases to commodity prices and further disruptions to supply chains may further challenge central banks across the world in their efforts to fight inflationary pressures.
“Higher-than-anticipated inflation would impact claims costs, with potential implications for the adequacy of reserves,” Todor Kitin, financial analyst at AM Best, said.