Insurance broker CAC Specialty has said the representations and warranties insurance (RWI) market has tightened significantly in Russia, Ukraine, and other impacted regions with some underwriters outright denying coverage.
In a specialty report which was compiled based on feedback from numerous RWI underwriters, CAC stated how RWI appetite in the region was already limited prior to the invasion of Ukraine by Russia. But, now some underwriters are actively trying to avoid the area completely, while others are denying coverage based on “capacity-provider mandates”.
CAC Specialty said: “For underwriters that historically offered terms on deals with exposure in these areas, responses at the quoting stage now range from immediate declinations for submissions with any exposure in Russia, Ukraine, or Belarus, on the one hand, to consideration on a case-by-case basis with an underwriting microscope over any nexus with the region, on the other.”
The report also added that due diligence in the region was always heightened, but instead underwriters are now looking for diligence to confirm the deal poses essentially no risk arising from the current war or political fallout.
In addition, all markets will be increasing their scrutiny with a high focus on ownership structure, customer base, supply chain, contracts, personnel, operations and IT-related matters.
Even with thorough diligence, CAC believes that at least in the near term, it will be incredibly difficult to obtain a quote where a target has material operations or exposure in these countries. The broker concluded that in the near term the best-case outcome will be a quote with broad exclusions for all such operations and exposure.
The broker said that the exclusions it has already seen, generally include language to protect underwriters from loss resulting from “any business, assets or other operations relating to Russia, Ukraine or Belarus, or embargoes, economic sanctions or other restrictive measures in place.”
One underwriter said that its new exclusion is a non-negotiable, top-down requirement for all policies. Other exclusions can be expected to address the impacts on business due to the Ukraine invasion between signing and closing but can be removed at closing if no impacts arise during the interim period.
CAC also stated when considering a transaction that has potentially been impacted by the ongoing conflict, you should be proactive and communicative. This includes: having candid conversations with your broker and potential insurers early and often, clarifying any actual exposure to Ukraine, Russia or Belarus with thorough written diligence, and lastly, being prepared to negotiate a reasonable coverage position related to effects of the conflict.
