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Russian invasion of Ukraine likely to have ‘significant fallout’: AM Best

28th February 2022 - Author: Pete Carvill

Russia’s invasion of Ukraine will likely have significant fallout in the capital markets, impacting the entire industry in the short-to-medium term, says AM Best.

Russia imageCiting the potential for cyberattacks, AM Best said that the invasion may have ‘a substantial impact on the world’s insurance industry’.

It added: “The economic effects of sanctions include a material increase in commodity prices, which could add to inflationary pressures, challenging efforts by the global central banks and the US Federal Reserve to contain inflation. In addition, the sanctions may have severe knock-on effects not just on oil and commodity prices, but also tourism, as well as the economies of the world’s less resilient countries. Further sanctions may impact the ability of international (re)insurers to underwrite Russian risks or make it more difficult for them to service claims on existing policies.”

The impact of Russia’s aggression, said AM Best, is already being felt, with the short-term fallout on markets being ‘immediate and severe, with continued volatility and uncertainty likely’.

It added: “The Russian stock index, the MOEX, plunged as much as 45%, while the RTS index, which is denominated in USD, was down more than 40% in early morning trading on February 24. Both indexes have since recovered some of their losses, but are expected to remain volatile. Russia’s was not the only stock market to fall as contagion spread across stock indices worldwide.”

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Others analysts have been forthcoming with predictions as to where the current situation in Europe may lead markets.

A note today from Hargreaves Lansdown said: “Parallels are emerging with the Cuban missile crisis in 1962, when financial markets underwent a steep correction after a year of strong market gains, particularly for tech stocks, and there was a fresh market plunge brought on by a highly fraught geopolitical stand-off.”

It added: “The ramping up of sanctions and more targeted action to freeze out Russia’s financial sector with the exclusion of banks from the Swift international messaging system is a move likely to hit the rouble hard with the Russia currency set for a sharp slide on Monday, while a flight to the perceived safety of the US Dollar and Japanese Yen may intensify.”

Within Russia, Capital Economics has written, the situation has ‘caused turmoil’. In a note, that organisation said: “The sanctions have caused turmoil in Russia’s financial markets, with the ruble opening down 30% against the dollar in offshore trading and falling by much more (~70%) on local retail currency exchanges. These are the conditions in which runs on local banks begin. The CBR has this morning raised interest rates to 20% but other measures (e.g. limits on deposit withdrawals) are possible later today. All of this will accelerate Russia’s economic downturn – a fall in GDP of ~5% now looks likely.”

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