Russia-Ukraine: Lessons for the (re)insurance market

As we have outlined in previous articles in our four-part series at this week’s Monte Carlo Rendez-Vous, the geopolitical impacts and lessons from Ukraine and Covid-19 have taught us that the (re)insurance industry must think outside of traditional industry silos, collaborate and use its imagination to create solutions which protect corporate balance sheets from the threat of connected risk.

This is pertinent at a time when global insurance losses from the Russia-Ukraine war could range from $16bn to $35bn, with reinsurers expected to assume 50 percent of those claims, according to a Reuters report quoting S&P Global Ratings research. As this article was being written, there were 515 aircraft leased to Russian airlines with an appraised insured value of $12bn, with only 78 aircraft having been reported as safely recovered. Earlier in the year, the world’s largest aircraft lessor said it had submitted a $3.5bn claim to its insurers.

Other classes of insurance are also exposed, including trade credit (contract frustration, agriculture and commodities), political violence and marine hull war. Beyond that, broker Gallagher has said it is seeing many financial institutions insurers react to developments by adding a specific territorial restriction exclusion to policies. Gallagher also noted that cyber insurers are introducing updated war exclusions to their policies. In some cases, this may result in no cyber coverage applying in the event of a state-sponsored cyber attack by Russia.

Apart from credit sector exposures, the Russia-Ukraine conflict has brought into focus the correlation between credit insurance and other lines of business in a full-blown ‘war’ situation. Credit insurance is regarded as a largely non-correlating line of business, especially by multi-line (re)insurers. In a rapidly transforming world, creating new flashpoints, (re)insurers will therefore need a better understanding of how credit is correlated with other lines of business.

The rise of China creates potential flashpoints (e.g., Taiwan), as well the notorious Strait of Malacca. The Russian invasion of Ukraine as a case study demonstrates that credit can be exposed to the same events as various diverse lines, such as aviation war, marine war, cargo and political violence.

Brexit, Covid-19 and now Ukraine have illustrated how trade can be disrupted. An even more critical potential chokepoint exposure can be found in the South China Sea through the Strait of Malacca, which is where the next geopolitical trade disruption will play out, as we will discuss in our next article in this series. We will examine the impact of the flow of trade, the industry requirement and the actions that will be needed to develop solutions for corporates.

Suki Basi is managing director at Russell Group