War in Ukraine ‘manageable’ for London Market, but wildcards abound

The war in Ukraine should prove manageable for London market insurers, but could be grounds for a downward revision in outlook should claims developments fall materially out of line with early expectations, the  AM Best ratings agency warned in its latest research.

“The conflict in Ukraine is likely to be a major, albeit manageable, loss for the London market, with aviation, political risk, political violence, marine and trade credit lines expected to be most affected,” analysts wrote.

Rates in affected lines will take increased upward pressure. “The high degree of uncertainty associated with ultimate exposure is likely to be long-lasting and fuel rate strengthening in affected lines for some time to come.”

The issue bears “material uncertainty” for the scale and scope of potential direct claims, not to mentioned secondary effects, analysts warned. “Claims will be highly complex and could be litigated for many years.”

“Were Ukraine conflict-related claims expectations to change materially for the worse, this may be a trigger for  AM Best to review its market outlook.”

For now,  AM Best is holding the outlook for the London market at stable as rate momentum, the close of the pandemic and hopes for London market efficiencies counter downside risks, Jessica Botelho-Young, Tim Prince and Catherine Thomas determined.

Amongst secondary effects, the war in Ukraine brings commodity inflation and more of the supply chain disruptions that have already sent claims inflation upward, analysts warned.

“Heightened geopolitical risk” is likewise a key ingredient in the “challenging macroeconomic environment” which  AM Best now sees driving select rates on the London market.

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