The ongoing war in Ukraine means that commercial credit insurance companies should expect an influx of credit claims from companies that supply goods or services on credit to Russian customers.
This is what the investment analysis company DBRS Morningstar says, which recently released comments on the commercial credit insurance market.
Although the insurance companies’ exposure to companies exporting to Ukraine is likely to be subject to war exclusions, this will not necessarily be the case for Russian companies as the conflict does not take place within its borders, Morningstar states.
“War exclusions may limit commercial credit insurance companies’ loss exposure to business related to Ukraine but are unlikely to apply to business in Russia as the conflict is not within Russia̵7;s borders,” said Victor Adesanya, vice president, insurance at Morningstar. “Russian companies may fail to transfer money to foreign suppliers as a result of financial sanctions against them.”
The risk of payment remarks has increased due to the amount of financial sanctions against Russian companies. These sanctions include exclusion from the Swift international payment mechanism, a move that will increase the risk of default if companies are unable to perform international financial transactions, according to Morningstar.
This is likely to lead many insurers and reinsurers to leave the Russian market to limit their exposure.
The German insurance company Allianz SE announced on March 14 that they would no longer write any Russian deals.
But even if commercial credit insurance companies will do the same, they will still be exposed to business that began before the conflict, Morningstar said in its comment.
The commercial credit insurance sector is dominated by three players – Euler Hermes, Atradius and Coface – which together account for 85% of the global market. It is these three who “may have to pay significant claims in the coming months as the conflict continues”, states Morningstar.