US insurers may have ‘significant’ indirect exposure to Russia-Ukraine conflict, warns AM Best

The impact of Russia's invasion of Ukraine may appear to be limited thus far on US-based insurers but indirect exposure may prove to be “substantial” depending on how the situation unfolds, ratings agency  AM Best has warned.

While US insurers have less than $2 billion in bonds exposed to Russia and Ukraine, they do have exposures to companies that derive a share of earnings from Russia, Best said.

“Indirect investments through suppliers and customers of U.S. and European companies may still be impacted, similarly to the already substantial impact on commodity and energy markets,” according to Jason Hopper, associate director, industry research and analytics at AM Best.

AM Best estimates that the largest exposure at any company is less than 2% of capital and surplus, with the vast majority of these bonds investment grade NAIC-2. According to Best’s Commentary, ‘US Insurers’ Indirect Exposures to Russia May Be Significant’, higher capital charges could result if the issues were to fall below investment grade for an extended period, depending on the duration of the conflict and other factors.

The war in Ukraine and worsening business operating environment in Russia has prompted more companies to discontinue operations in the country, with oil prices shooting up and increased volatility in financial markets.

AM Best expects the markets to rebound as seen in other geopolitical crises, but noted that it is too early to determine specific impacts.

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