A new note from Bank of America outlines the uncertainty that current sanctions on Russia have for insurance companies.
Following Russia’s invasion of—and probable war crimes against—Ukraine in recent weeks, sanctions against the country from around the world have been applied. According to Bank of America, much of the effects of these sanctions on insurers are yet to be tested.
Bank of America wrote: “Many of the relevant lines have so called war exclusions (coverage lapses in the event of war). However with the war raging in the Ukraine, it is not entirely clear how exposures to Russia will be dealt with in terms of these exclusions. Furthermore, it remains to be seen how the sanctions by the west get treated in that regard too. For example it seems that if a country gets cut off the SWIFT payment system, this can be a reason for the credit insurance policy to stop providing protection. Therefore, it is unclear what might or might not be covered.”
There are six areas that the bank has outlined that could be affected by the war: political risk, credit risk, aviation, marine, cyber, and energy, although it was careful to say that these were dependant on how the situation develops.
Political and credit risk are a key near-term focus, said Bank of America, and is where European reinsurers and London market insurers might have exposure.
Marine and aviation, the bank wrote, may have some exposure where areas of cover may not apply war exclusions. It added: “It should however be noted that insurance companies have an ability to cancel/ amend policies or charge higher premiums in these situations, suggesting there is some flexibility to manage exposures.“
There are also concerns around cyber.
Bank of America wrote: “To date the Russian/Ukrainian war has been a physical fight with the West responding via sanctions. There is a risk that at some stage there would also be a cyber war, and possibly beyond the Russian/Ukrainian borders. Cyber policies generally have war exclusions, but whether an event will fall under these exclusions primarily depends on whether the government of the country where the affected company / infrastructure is placed attributes the cyber operation to another state or those acting on its behalf. The burden of proof for insurance companies, if required, might be tough.”
However, insurers reportedly have little direct exposure to Russia and Ukraine, says Bank of America.
It wrote: “Insurance companies tend to invest in assets in the same currency / geography as their liabilities are based. With very few of the companies operating in either Russia or the Ukraine, the exposures are likely to be de minis. The few companies that have communicated their exposure to the region generally confirm this.”
