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Life Rating Analysts Start to Think About Ukraine

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What You Need to Know

  • Life and annuity issuers did well in terms of sales and profitability in Q4 and in all of 2021.
  • The attack could affect U.S. insurers by hitting the world economy, which would affect everybody, Iten said.
  • U.S. companies have little exposure to Eastern European insurance business or investments, according to NAIC data.

Rating analysts are starting to wrestle with ideas about what Russia’s invasion of Ukraine might mean for U.S. life and annuity issuers.

Russia launched a broad land, sea and aerial attack on Ukraine around 10 p.m. Eastern time Wednesday (5 a.m. Thursday in Kyiv, Ukraine’s capital).

Anika Getubig, an associate director with S&P Global Ratings, talked about the invasion briefly Thursday in a web briefing the rating agency held to go over insurance sector performance in the fourth quarter of 2021.

“That has caused a lot of market turmoil,” Getubig said.

She noted that that she has been asking many life and annuity issuers about the implications of a Russian war with Ukraine this week.

At that point, “they were not yet seeing an impact through investments,” Getubig said.

Now that the war has started, “it’s really just too early to tell,” Getubig said. “Right now, we’re not seeing a lot of that impact going through. It’s certainly something to pay close attention to as this unfolds.”

What It Matters

How S&P analysts see the world and insurers has a big, direct on insurers’ finances, because S&P’s ratings affect whether insurers, and countries such as Russia, can borrow money, and how much they have to pay when they take out ordinary loans or issue bonds.

The Backdrop

The Russian attack occurred at what, for U.S. life insurers, has been a time of optimism.

Life and annuity issuers did well, both in terms of sales and profitability, in the fourth quarter of 2021, and in all of 2021, despite the effects of the COVID-19 pandemic on mortality and morbidity, Getubig said.

“We do think the life insurance industry has demonstrated resiliency through a challenging period,” she said.

Getubig sees insurers’ sales of registered index-linked annuities and variable universal life as especially strong.

One sign of the big, publicly traded life insurers’ strength and optimism is that their spending on buying back their own shares of stock increased above 2019 levels.

In 2020, Getubig said, life insurers cut share buyback spending sharply to conserve cash.

U.S. Insurers and Russia

John Iten, an S&P senior director who tracks property and casualty insurers, suggested that Russia’s attack on Ukraine could affect U.S. insurers by hitting the world economy.

If the attack hurts the economy, “everybody will be affected by that,” Iten said.

But because of sales challenges, U.S. companies have little exposure to Eastern European insurance business or investments, he added.

The National Association of Insurance Commissioners has a memorandum of understanding with Russia’s top insurance regulator, the Federal Service for Insurance Supervision.

But one NAIC Capital Markets Bureau report shows that U.S. insurers held less than $1 billion in Russian corporate or government bonds in their portfolios at the end of 2019.

Another report shows that U.S. insurers of all kinds collected less than $22 billion in insurance premium revenue from customers in Russia in 2020. Russia accounted for about 0.3% of U.S. premium revenue.

Russia and Bond Yields

Life and annuity issuers support obligations with trillions of dollars’ worth of high-grade corporate bonds. They have been earning low rates on those bonds for years, and Federal Reserve efforts to cushion the stock and home markets by holding interest rates down cut bond yields further.

The Fed has been suggesting that it will respond to inflation by raising interest rates, in an effort to slow spending and boost saving.

It’s possible that the turmoil caused by Russia’s attack on Ukraine could affect the rate increase plans.


Pictured: Residents of Kyiv wait for a bus Thursday, hours after Russia launched a broad attack on Ukraine. (Photo: Ethan Swope/Bloomberg)


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