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

From the Insurance Journal, February 28, 2022

Russia’s invasion of Ukraine could add to inflationary pressures and will likely have a substantial impact on the global insurance industry, said AM Best.

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 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, AM Best financial analyst, in a statement. “Most affected would be those writing large energy and infrastructure risks, such as London Market insurers, and international reinsurers.”

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.”

An escalating conflict will also increase the risk of a systemic cyber attack. AM Best said: “Heightened risk perception could lead to high prices in an already hardening market.”  **end of Insurance Journal article**

So, what does this have to do with your home and auto policy in rural America?  Well nearly all insurance companies regardless of size also purchase reinsurance to help spread the risk of catastrophic losses.  While the reinsurance markets are massive from a premium standpoint, they are relatively small in terms of numbers of carriers in the market.  So when these markets are affected negatively even by events halfway around the world, their losses and eventually rate increases get spread out and passed on to nearly all of the insurance markets in the world.  Joseph D. Beck, CIC, CPRM, President, Beck Insurance Agency, Inc.