Fitch Ratings said on Thursday that a sustained downturn in the market could erode the "capital headroom" of many insurers — the amount of cash they retain above their regulatory minimums.
The European Union and the U.K. have introduced punishing financial sanctions on Russia since it sent troops and tanks into neighboring Ukraine more than three weeks ago. The measures include a ban on insurers in Europe or Britain from providing insurance for space or aviation to Russian clients or for goods intended to be used in the country.
Fitch said that it estimates that 2% of the premiums written by global reinsurers comes from Russia. Other organizations have even less exposure: Lloyd's of London has said that just 1% of its business is affected by the sanctions.
"European insurers and reinsurers have little direct Russian exposure in their insurance books and investment portfolios, and negligible Belarusian and Ukrainian exposure," the company said. "However, volatility in global financial markets caused by the conflict could affect their capital ratios.
"Moreover, the conflict raises the prospect of even higher inflation, which could lead to pressure on profitability, particularly for non-life insurance," the ratings agency added.
But the company said that insurers could take a major hit from indirect exposure to the Russian market, which could "materially affect" earnings, although capital levels are less likely to be affected.
"We expect the conflict to lead to claims from trade credit, surety and political risk insurance, bought by corporate clients that do business in Russia, Belarus and Ukraine," Fitch added. "Individual claims could be large and subject to legal disputes, but most insurers' aggregate losses should be modest relative to their overall revenue and capital."
Investment bank Berenberg raised questions on Wednesday about the possibility that Russia could confiscate up to 600 foreign-owned aircraft that have been grounded at airports across the country since the introduction of aviation sanctions. The London insurance market could be hit with claims of up to $10 billion if that happens, the company said.
--Editing by Ed Harris.
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