FRANKFURT (S&P Global Ratings) March 4, 2022--For the many insurers headquartered outside Russia that have exposure to the country, their exposure is small enough and their capital strong enough for them to avoid a deterioration in credit quality, S&P Global Ratings services said today.

The same is true for insurers and reinsurers with no direct exposure to Russia, but we continue to assess the impact of macroeconomic and financial market volatility on balance sheets. At this stage we believe these pressures are manageable for most given the strong capital buffers and conservative investment profiles as a whole across the sector.

Soon after the hostilities began, we took negative rating actions on insurers headquartered in Russia (see "Negative Rating Actions Taken On Russian Insurers On Heightened Geopolitical And Economic Risks," published on Feb. 28, 2022). We downgraded Sogaz, Ingosstrakh, and Sberbank Insurance, and placed the ratings on CreditWatch with negative implications. The ratings of VSK Insurance, Energogarant, Lexgarant, Alfastrakhovanie, and Reso-Garantia are on CreditWatch with negative implications as well. The ratings of Rosgosstragh have been suspended because the company is subject to sanctions by the U.S. Department of Treasury Office of Foreign Asset Control.

We consider that the escalation of Russia-Ukraine tensions, the military operations in Ukraine, and the widening of sanctions against Russia could lead to conditions that eventually destabilize Russia's economy and financial system (see "Russia Ratings Lowered To 'CCC-' And Kept On CreditWatch Negative On Increasing Risk Of Default," March 3, 2022). We consider the impact of recent sanctions and possible additional ones could further intensify volatility in domestic markets and the local currency, which in turn could erode the profitability and capital positions of insurers based there.

It should be noted that insurers not headquartered in Russia have exposure to the country as well (see "The Macro And Credit Effects Of Russia’s Invasion Of Ukraine," Feb. 25, 2022). Some primary insurers such as Allianz, Axa, and Uniqa also have operations in Russia. We believe that for most of these insurers, asset and insurance liability exposure is less than 2% of total adjusted capital or below 1% of total assets and liabilities, or both. We believe the capital positions of European insurers are a key strength (see "EMEA Insurance Outlook 2022: Fighting Fit For 2022," Nov. 16, 2021). Therefore, we do not expect invested asset volatility in Russia or local liabilities to lead to negative rating actions.

Of the group of insurers in the preceding paragraph, we see potential downside risks for one: KLPP Insurance And Reinsurance Co. Ltd., so we placed the company on CreditWatch with negative implications. It has assets in Russia and also writes some insurance business both directly and indirectly linked to Russia (see "Cyprus-Based KLPP Insurance And Reinsurance On Watch Negative Following Russia's Military Intervention In Ukraine," March 2, 2022).

Aside from these companies, many global and regional reinsurers have exposure to Russia, as well as some industrial line writers. As of now, we believe global reinsurers' exposure is very limited, in most cases less than 1% of assets and existing liabilities, in some cases even less than 0.1%. Although Russian primary insurers make use of reinsurance from abroad, the overall volume is rather small in a global context.

It is also worthwhile noting that many, but not all, reinsurance contracts have war and sanctions exclusions. Our base case assumption is that claims will be paid once they arise despite sanctions against many Russian banks. This is because many clients of global reinsurers and industrial line writers in the region are foreign multinational corporates, so there might be sufficient financial service connections outside of Russia to keep premium and claim payments alive.

For European insurers specifically, we believe asset exposures to be very limited as Solvency II regulation requires risk assessment under different lenses—quantitatively and qualitatively. Asset exposures might include Russian sovereign bonds as well as holdings of corporate or bank bonds. However, as of now, we believe they are limited to far less than 1% of investments for most European insurers we rate.

Outside of Europe, we also scanned for Russian asset exposures. We found that, for example, Taiwanese life insurers have an aggregate exposure to the country of new Taiwan dollar (NT$) 147 billion, accounting for 6% of total shareholder equity. However, the exposure ranges widely for these insurers. Although we believe the wider life insurance sector in Taiwan has sufficient buffer to absorb the adverse impact from potential depreciation of the investment exposure, we continue to pay close attention to companies with slim capital buffers and above-average exposure to Russia (see "Taiwan Life Insurers' Russia Exposures Look Manageable," Feb. 23, 2022).

S&P Global Ratings acknowledges a high degree of uncertainty about the extent, outcome, and consequences of the military conflict between Russia and Ukraine. Irrespective of the duration of military hostilities, sanctions and related political risks are likely to remain in place for some time. Potential effects could include dislocated commodities markets--notably for oil and gas--supply chain disruptions, inflationary pressures, weaker growth, and capital market volatility. As the situation evolves, we will update our assumptions and estimates accordingly. See our macroeconomic and credit updates here: Russia-Ukraine Macro, Market, & Credit Risks. Note that the timing of publication for rating decisions on European issuers is subject to European regulatory requirements.