Global insurers and reinsurers generally have little direct business or investment exposure to Ukraine and Russia, according to a report Friday from Moody’s Investor Services Inc.
The insurance industry, however, could face secondary impacts of the conflict including greater financial market volatility and higher energy prices.
Insurance penetration in Ukraine and Russia is low, particularly among international insurers, and the Russian and Ukraine insurance markets are dominated by local insurers. Further, most insurance lines of business carry war exclusions in their contract language.
Some property/casualty and reinsurers could experience “moderate” losses from both market volatility and underwriting from a few specialty lines including political/sovereign risk insurance and trade credit insurance. “Public equities were hit particularly hard across the globe both on the run up to the invasion, and immediately following, although some indices have partially recovered,” Moody’s said.
Among the wider fallout from the conflict, higher energy and commodity prices could drive claims inflation for insurers. The conflict could also lead to further supply chain disruptions and higher property repair costs.
Exports from Ukraine and Russia that are used in property or vehicle repairs include lumber, petroleum products, iron, chemicals, platinum, aluminum and auto parts, Moody’s said.
There may also be a heightened risk for cyber insurers as the conflict raises the risk of worldwide cyberattacks against critical infrastructure assets, along with a possible further escalation and increased frequency of cyberattacks against private companies and other organizations.
Moody’s notes that while cyber insurance policies generally contain war exclusions, “language is inconsistent across the market and world, and how these exclusions would apply to affected parties outside Ukraine can be complex.”
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Issue: Reinsurance, often referred to as “insurance for insurance companies,” is a contract between a reinsurer and an insurer. In this contract, the insurance company—the cedent—transfers risk to the reinsurance company, and the latter assumes all or part of one or more insurance policies issued by the cedent.
Insurance is a legal agreement between an insurer and an insured in which the former guarantees to defend the latter in the event of damage or death. Reinsurance is the insurance a firm purchase to lessen severe losses when it decides not to absorb the entire loss risk and instead shares it with another insurer.
Definition: Reinsurance risk refers to the inability of the ceding company or the primary insurer to obtain insurance from a reinsurer at the right time and at an appropriate cost. The inability may emanate from a variety of reasons like unfavourable market conditions, etc.
The collapse of the reinsurance market access for Ukraine in 2022 due to a lack of interest from Western insurers has led to: Limited local capacity. Shortened Business Interruption indemnity periods. Machinery Breakdown and Loss of Profit cover have been almost impossible to obtain.
War risks cover for Ukraine from the private market all but disappeared as insurers and reinsurers withdrew in the wake of Russia's invasion of the country two years ago.
The ratings agency feels that Europe's big four reinsurers, Munich Re, Swiss Re, Hannover Re, and SCOR are well placed for a strong 2024, even though underwriting margins will likely peak this year.
In the case of insurance, the insured transfers risk arising from unforeseen events to the insurer in exchange for premium payment. On the other hand, reinsurance involves transferring the risk of one insurance company to another in exchange for premiums paid at regular intervals.
Reinsurance reduces the net liability on individual risks and catastrophe protection from large or multiple losses. The practice also provides ceding companies, those that seek reinsurance, the chance to increase their underwriting capabilities in number and size of risks.
The company that issues the policy initially is known as the primary insurer. The company that assumes liability from the primary insurer is known as the reinsurer. Primary companies are said to “cede” business to a reinsurer.
Reinsurers play a major role for insurance companies as they allow the latter to help transfer risk, reduce capital requirements, and lower claimant payouts. Reinsurers generate revenue by identifying and accepting policies that they believe are less risky and reinvesting the insurance premiums they receive.
Default by a reinsurer will - potentially - lead to losses to the ceding insurer. A Dynamic Financial Analysis (DFA) model, such as those used to assess solvency and for capital planning in general insurance companies, should address this risk.
Risks are transferred from individuals and companies, through primary insurers to the reinsurer. Reinsurance allows those parties to reduce their risk exposure and own capital requirements. Freeing up capital allows insurers to write more business, thus enabling economic growth and helping to create stability.
Insurance companies typically won't cover damages caused by war for clear reasons. If war breaks out in a country, it could cause a catastrophic amount of damage that would likely bankrupt the insurance company if it were on the hook to cover such damages.
At the outbreak of the invasion, predictions were that the war would significantly increase cargo and marine premiums. That came to fruition at the end of May when it was reported that premiums for certain aviation and marine activities had increased by 100% or more.
Many health workers in Ukraine ceased patient care following the war outbreak, and others were compelled to abandon clinical facilities due to targeted attacks on the health system [5, 6].
For the people of Ukraine, incomes have plummeted. Poverty in the country soared from 5.5% of the population to 24.2% in 2022, according to the World Bank. The war has thus pushed 7.1 million more people into poverty, undoing 15 years of progress.
Introduction: My name is Rev. Leonie Wyman, I am a colorful, tasty, splendid, fair, witty, gorgeous, splendid person who loves writing and wants to share my knowledge and understanding with you.
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