While US insurers only have less than $2 billion in bonds exposed following Russia’s invasion of Ukraine, AM Best said the sector’s indirect exposures could be greater.
According to AM Best, any company’s largest exposure is less than 2% of capital and surplus, with the majority of bonds rated Investment Grade NAIC-2.
“. . . Higher capital charges could result if issues were to fall below investment grade for an extended period, depending on the length of the dispute and other factors,” according to a report by AM Best.
The rating agency noted that while US insurance companies have little exposure to Russian companies in their direct equity portfolios, they do have exposure to companies that derive a portion of their profits from Russia.
“Indirect investments through suppliers and customers of US and European companies may still be impacted, similar to the already substantial impact in commodity and energy markets,” said Jason Hopper, managing partner. , industry research and analysis, AM Best, in a statement.
AM Best removes SOGAZ’s rating
This review follows the withdrawal by AM Best of the financial strength rating of “B++” and the issuer’s long-term credit rating of “bbb” for the insurance company Gaz Industry SOGAZ, one of the largest insurance companies in Russia in terms of market share.
AM Best reported that at the time of the withdrawal, SOGAZ’s ratings were being reviewed with negative implications. The ratings were withdrawn for commercial reasons, including sanctions imposed on SOGAZ.
Founded in 1993, SOGAZ underwrites more than 100 property and casualty, health and life insurance programs, and pays out more than 290 million rubles (about $2.07 million) a day to cover insured events, the company reported.
Other direct U.S. implications so far include the inability to transact financial transactions between the U.S. and Russia due to a freeze on Russian banks and financial institutions, lack of imports and Russian exports and the inability of companies to continue their commercial operations between the United States. and Russia.
Standard insurance policies will not cover loss or damage resulting from any of these factors. For example, a high-end restaurant regularly offers imported Russian caviar and Russian vodka on its menu. Because they cannot obtain the imported items or they selectively choose not to serve these items, these are not direct physical losses that would be covered by a standard open risk policy. If the items could not be imported, this may be covered if the restaurant has a political risk insurance policy. Simply not offering a product is a business decision and not a casual loss.
It is possible that the restaurant has reduced attendance due to its renowned Russian atmosphere and Russian food and drink selections, resulting in a loss of business revenue. This would also not be covered by standard business interruption coverage, as there was no direct loss or damage to the restaurant or its products that caused the reduction in footfall. Again, there may be some coverage under a political risk insurance policy.
It is not inconceivable that some businesses could be subject to riots or vandalism if the owner of the business or its operations are of Russian nationality or show support for Russia in this conflict. If this happens, there is cover for riot and vandalism loss or damage under ISO Form CP 10 30 10 12 for special causes of loss of commercial property.
If a business is operating with wire transfers from Russia and is unable to continue operations or pay employees due to the bank freeze, there will be no coverage for that loss of business income in the standard ISO asset policies, as bank freezing is not covered. cause of the claim, as government action is excluded. A political risk insurance policy or credit insurance may provide some coverage for this type of loss. Related: