Many global and regional reinsurers have exposure to Russia, as well as some industrial line writers. As of now global reinsurers’ exposure is very limited, in most cases less than 1% of assets and existing liabilities, in some cases even less than 0.1%.
Although Russian primary insurers make use of reinsurance from abroad, the overall volume is rather small in a global context.
It is also worthwhile noting that many, but not all, reinsurance contracts have war and sanctions exclusions
London:
For the many insurers headquartered outside Russia that have exposure to the country, their exposure is small enough and their capital strong enough for them to avoid a deterioration in credit quality, S&P Global Ratings services said today.
“The same is true for insurers and reinsurers with no direct exposure to Russia, but we continue to assess the impact of macroeconomic and financial market volatility on balance sheets. At this stage we believe these pressures are manageable for most given the strong capital buffers and conservative investment profiles as a whole across the sector,’’ assured S&P Global ratings.
S&P Global ratings. considers that the escalation of Russia-Ukraine tensions, the military operations in Ukraine, and the widening of sanctions against Russia could lead to conditions that eventually destabilize Russia’s economy and financial system.
It considers the impact of recent sanctions and possible additional ones could further intensify volatility in domestic markets and the local currency, which in turn could erode the profitability and capital positions of insurers based there.
It should be noted that insurers not headquartered in Russia have exposure to the country as well). Some primary insurers such as Allianz, Axa, and Uniqa also have operations in Russia. For most of these insurers, asset and insurance liability exposure is less than 2% of total adjusted capital or below 1% of total assets and liabilities, or both.
The rating agency believes the capital positions of European insurers are a key strength.
“ Therefore, we do not expect invested asset volatility in Russia or local liabilities to lead to negative rating actions,’’ assures the rating agency.
“Of the group of insurers we see potential downside risks for one: KLPP Insurance And Reinsurance Co. Ltd., so we placed the company on CreditWatch with negative implications. It has assets in Russia and also writes some insurance business both directly and indirectly linked to Russia,’’ said the agency.
Aside from these companies, many global and regional reinsurers have exposure to Russia, as well as some industrial line writers. As of now global reinsurers’ exposure is very limited, in most cases less than 1% of assets and existing liabilities, in some cases even less than 0.1%. Although Russian primary insurers make use of reinsurance from abroad, the overall volume is rather small in a global context.
It is also worthwhile noting that many, but not all, reinsurance contracts have war and sanctions exclusions.
“Our base case assumption is that claims will be paid once they arise despite sanctions against many Russian banks. This is because many clients of global reinsurers and industrial line writers in the region are foreign multinational corporates, so there might be sufficient financial service connections outside of Russia to keep premium and claim payments alive,’’ said S&P Global ratings.
For European insurers specifically, asset exposures to be very limited as Solvency II regulation requires risk assessment under different lenses—quantitatively and qualitatively. Asset exposures might include Russian sovereign bonds as well as holdings of corporate or bank bonds.
“However, as of now, we believe they are limited to far less than 1% of investments for most European insurers we rate,” said the credit rating.
Outside of Europe,Taiwanese life insurers have an aggregate exposure of new Taiwan dollar (NT$) 147 billion to Russia, accounting for 6% of total shareholder equity.
“However, the exposure ranges widely for these insurers. Although the wider life insurance sector in Taiwan has sufficient buffer to absorb the adverse impact from potential depreciation of the investment exposure, we continue to pay close attention to companies with slim capital buffers and above-average exposure to Russia,’’ said S&P Global ratings.
S&P Global Ratings acknowledges a high degree of uncertainty about the extent, outcome, and consequences of the military conflict between Russia and Ukraine.
Irrespective of the duration of military hostilities, sanctions and related political risks are likely to remain in place for some time. Potential effects could include dislocated commodities markets–notably for oil and gas–supply chain disruptions, inflationary pressures, weaker growth, and capital market volatility.
“As the situation evolves, we will update our assumptions and estimates accordingly. Our macroeconomic and credit updates here: Russia-Ukraine Macro, Market, & Credit Risks. Note that the timing of publication for rating decisions on European issuers is subject to European regulatory requirements,’’ said the rating agency.
Outside of Europe, S&P has also scanned for Russian asset exposures and It found that, for example, Taiwanese life insurers have an aggregate exposure to the country of NT$147bn ($5.2bn), accounting for 6% of total shareholder equity.
However, the exposure ranges widely for these insurers. Although S&P believes the wider life insurance sector in Taiwan has sufficient buffer to absorb the adverse impact from potential depreciation of the investment exposure, the credit rating agency continues to pay close attention to companies with slim capital buffers and above-average exposure to Russia.
S&P acknowledges a high degree of uncertainty about the extent, outcome, and consequences of the military conflict between Russia and Ukraine. Irrespective of the duration of military hostilities, sanctions and related political risks are likely to remain in place for some time.
Soon after the hostilities began, S&P Global ratings. took negative rating actions on insurers headquartered in Russia by downgrading Sogaz, Ingosstrakh, and Sberbank Insurance, and placed the ratings on CreditWatch with negative implications. The ratings of VSK Insurance, Energogarant, Lexgarant, Alfastrakhovanie, and Reso-Garantia are on CreditWatch with negative implications as well. The ratings of Rosgosstragh have been suspended because the company is subject to sanctions by the U.S. Department of Treasury Office of Foreign Asset Control.
Meanwhile, AM Best has downgraded the Financial Strength Rating to B+ (Good) from B++ (Good) and the Long-Term Issuer Credit Rating to “bbb-” (Good) from “bbb” (Good) of GIC Perestrakhovanie LLC (Russia). Concurrently,
AM Best has maintained the under review with negative implications status for these Credit Ratings (ratings).
The ratings reflect GIC Perestrakhovanie LLC’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management.
The ratings also factor in rating lift due to the implicit and explicit support that GIC Perestrakhovanie LLC receives from its parent, General Insurance Corporation of India.
The rating downgrades reflect deterioration in GIC Perestrakhovanie LLC’s balance sheet strength due to heightened geopolitical, economic and financial system risk in Russia, where the company is domiciled and underwrites the majority of its business.
The ratings remain under review with negative implications as AM Best is closely monitoring the severity of the impact of sanctions, and the broader international response to the conflict in Ukraine, on Russia’s economy and financial system, and the subsequent consequences for the credit profile of GIC Perestrakhovanie LLC.
Balance sheet and operational concerns include potential liquidity constraints and issues in recovering from reinsurers.
Any deterioration in the ability or willingness of General Insurance Corporation of India to support GIC Perestrakhovanie LLC would likely result in a further downgrade.