AIG, one of the world's biggest commercial insurers, is considering cutting cover for Russia and Ukraine, to shield itself from the risk of hefty claims as sanctions ratchet up and the war drags on, an insurance broker and a source familiar with the matter said.
AIG is looking at adding exclusion clauses to policies for businesses operating in the region across a range of policies, according to the two sources who declined to be identified.
Other Insurers Look to Bail
Other major insurers are also looking to exclude Russia, Ukraine and even Belarus from a range of policies, the sources said, citing some insurers and policyholders.
Reuters could not determine if the potential reduction in cover would apply across all AIG policies in the countries. The insurer declined to comment.
"What we are now seeing are the underwriters starting to introduce Russia, Ukraine wording into their policies," said Meredith Schnur, managing director, U.S. and Canada cyber brokerage leader at insurance broker Marsh, declining to name the insurers.
Brokers such as Marsh act as intermediaries between corporate customers and insurers, and sometimes get involved in drawing up policies.
If AIG were to cut back cover for businesses and companies operating in Russia and Ukraine it would be the first major insurer to do so, potentially paving the way for others to follow suit.
While Russia has become a no-go zone for many companies due to sanctions imposed in the wake of Moscow's invasion of Ukraine, some multinationals continue to do business there as well as in Ukraine in sectors ranging from agriculture to energy. They require insurance to keep their businesses open.
Local companies also rely on insurance for damage to goods, buildings and vehicles and for injury or loss of life of employees. Reuters could not determine how much of AIG's business in Russia and Ukraine was focused on domestic firms.
AIG, which recorded net written premiums in general insurance totalling more than $26 billion last year, has operations in Russia, according to its website, and is a major global player in sectors such as energy, construction and cyber.
Sanctions on Russia are already forcing insurers to pull back from coverage of restricted Russian entities and individuals, while UK and European sanctions on aviation insurance extend beyond individual companies to all Russian firms.
Insurance brokers such as Aon and Willis Towers Watson have frozen operations in Russia, while reinsurers Munich Re and Swiss Re are among companies which have said they will not write new business in the country, whether potential policyholders are sanctioned or not.
But AIG and other underwriters are looking at going further, adding wordings into insurance policies to exclude cover for Ukraine, Belarus and the Russian and Ukrainian operations of Western businesses, industry sources say.
Insurers are concerned about reputational damage of doing business in Russia and they are also worried about property damage and delayed payments in Ukraine, where the economy has been pulverized by the war.
Some policyholders are already struggling to find insurance.
François Malan, chief risk and compliance officer at French engineering firm Eiffage, said last week that he was forced to accept an insurance exclusion for transporting cargo in waters near Ukraine.
"It was non-negotiable, it was not a question of price - it was non-covered," he said.
Ships sailing into waters around the Black Sea and Sea of Azov, which include Ukraine's coast, need to have additional war risk insurance which means paying a separate premium.
Some insurers are also cutting provision of this type of insurance due to the growing perils, which include being hit by projectiles or floating mines, marine insurance sources say.
Insurers generally add certain types of exclusion in policies exposed to potential conflict, such as during the South Korea winter Olympics, but do not usually exclude entire regions, as in the case of the Ukraine crisis.
The move to exclude risky areas of their business mirrors insurers' behavior following the COVID-19 pandemic.
Faced with losses estimated at $100 billion, insurers rushed to exclude first COVID-19 and then all pandemics from policies.
After also putting up premium rates, many of them reported strong profits in 2021, the second full year of the pandemic. Some industry sources say losses were smaller than originally anticipated as a result of those actions.
S&P Global last week estimated commercial insurers' losses from the Russia-Ukraine conflict could total as much as $35 billion.
S&P said the insurance sectors likely to be most impacted were aviation, trade credit, political risk such as nationalization, cyber, political violence and marine war.
Swiss Re said on Thursday that insurance and reinsurance losses from the invasion were likely to come in around the same as a medium-sized natural catastrophe loss such as from a hurricane.
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