Trade credit insurers facing elevated Russian claims due to Ukraine war

The ongoing war in Ukraine means that trade credit insurers should expect an inflow of credit default claims from companies supplying goods or services on credit to Russian clients.

That is according to investment research firm DBRS Morningstar, which recently released commentary on the trade credit insurance market.

While insurers’ exposure to companies exporting to Ukraine is likely to be covered by war exclusions, this will not necessarily be the case for Russian companies because the conflict is not taking place within its borders, states Morningstar.

“War exclusions may limit trade credit insurers’ loss exposures to business related to Ukraine but will likely not apply to business in Russia since the conflict is not within Russia’s borders,” said Victor Adesanya, vice president, insurance at Morningstar. “Russian companies may fail to transfer funds to foreign suppliers as a result of economic sanctions imposed on them.”

The risk of credit defaults has been heightened by the barrage of financial sanctions imposed on Russian companies. These sanctions include exclusion from the international payment mechanism Swift, a move that will elevate the risk of default if companies cannot execute international financial transactions, according to Morningstar.

This is likely to lead to many insurers and reinsurers exiting the Russian market in order to limit their exposure.

German insurer Allianz SE announced on March 14 that it would no longer write any Russian business.

However, while trade credit insurers will be doing the same, they will still be exposed to business initiated before the conflict, Morningstar said in its commentary.

The trade 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 that “may have to pay out significant claims in the coming months as the conflict persists,” notes Morningstar.