ING: impact of the war in Ukraine smaller than expected

Devastating events in Ukraine have had a limited impact on European insurers, according to a new report by ING.

Referencing trade credit, political risk, aviation and marine insurance, the bank says that the aviation market is taking a hit as hundreds of leased aeroplanes remain stranded on Russian soil, and leasing companies are making billions of losses. Referencing Fitch Ratings, it says the total residual value of aircraft left stranded in Russia is $13bn.

However, ING says that this might not have a substantial impact on insurance companies after all:

“In the event of war, the insurer is allowed to suspend the coverage within a certain amount of days, which we believe most likely happened.”

ING adds that trade credit insurance also excludes acts of war. However, ING concedes, there is a certain degree of uncertainty as to whether that would apply to only Ukrainian or also Russian companies.

A less obvious business line to be affected is cyber risk, it adds: 

“Since the escalation of the conflict between the two countries, numerous cyber-attacks have been launched. Cyber warfare is no longer a new phenomenon, but the extent of its impact on insurance companies is still not easy to assess”

“It is unlikely that many Ukrainian companies or firms operating in Ukraine have contracts with European insurers to protect them from cyber malware. It is also arguable whether such contracts would be binding as, generally, there is a clause that excludes war coverage.

Most of the insurers’ losses are from political risk and trade credit risk insurance. These explicitly provide coverage to companies in the event of war, civil war or any political upheaval.’

“No new political risk policies for Russia, Ukraine and Belarus are being created, and the losses on the existing ones grew significantly in the second half of 2022. The pace is expected to slow down next year. However, some losses may well still arise in the first quarter.”

Looking more broadly, ING predicts that demand for political risk and trade credit insurance is set to grow, as are their related premiums, “so this is really a double-sided situation: while insurers incurred losses, they also have a chance to make some of it back by charging new and higher premiums”.