June 2022 | The ICISA INSIDER
| Insights
Implications for credit insurance from Russian invasion of Ukraine1 By John Owen, Head of Marine & Political Risk at Axis Capital
The resilience of the trade credit insurance market and its ability to withstand global economic shocks will be once again tested by the Russian invasion of Ukraine. Amid the devastating impact on the people of Ukraine, the country and its economy, in the interconnected world we live, the global economy has continued to function albeit under considerable additional strain. Current state Insurers at the ICISA AGM in June cited a relatively benign claims environment so far this year, despite the economic and political fallout from the invasion. It was suggested that
space, it was suggested that, to date, the actual number of claims notifications has been modest. Debts are still generally being honoured, and while the impact of the war
Given the short-tail nature of this segment of the industry, it would seem well-placed to weather the storm. Perhaps the biggest headache for management arises not from increased insolvencies but from new Russian laws that are preventing normal operations in the country. Nowadays, perfectly justifiable changes in risk appetite could have serious implications for local employees, including the threat of prison, if they are deemed to be acting against the interests of Russia. This is a situation that the industry has never faced before.
Potential future geopolitical consequences
The single risk/structured trade credit segment faces more uncertainty as it has exposure in both countries that will remain live over the medium to long term. Western sanctions had an immediate impact on Russian companies’ ability to borrow new funds, but, so far, the sanctions have been prospective and not retrospective. And whilst it is taking time for western banks and insureds to liaise with sanctions authorities, those same authorities are slowly providing their approvals for interest and principal repayments by Russian borrowers to be released to Western lenders. Again, in this
Many countries that rely on Russian oil and all countries that rely on Ukrainian wheat will be under pressure to find new sources, and for many already impoverished countries this will add to their considerable financial and political strain. Civil unrest in a raft of emerging markets is a real possibility as winter approaches, as are sovereign credit downgrades, particularly from oil importing countries.
claims in these two countries accounted for up on most Russian exporting businesses has to 10% of current losses in the whole-turnover been severe, the very high commodity prices space, as evidently the vast majority of domestic local today, in part inflated by the war, are helping to currency debts are still being paid. cushion the full effects of western sanctions.
While the immediate impact of the invasion has been modest, underwriters recognise that we remain in a fastevolving geopolitical landscape. It is possible that Russia will impose its own sanctions that prevent Russian companies from repaying loans taken out prior to the invasion. Of equal concern are the indirect consequences and potential claims flashpoints that could arise in the next few months as food and energy prices spiral.
1 This material is for general information, education and discussion purposes only. AXIS assumes no liability by reason of the information within this material.
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