Russia-Ukraine crisis: insurers should be prepared for enhanced sanctions

Russia’s military build-up along its border with Ukraine has raised the very real spectre of a potential invasion by Russia of its neighbour.

In turn, it has led to speculation as to the potential response of the US, the UK and their European allies with regard to the range of severe economic measures that could be imposed against Russia, should such an invasion take place. While the eventual outcome remains unknown, the reaction to Russia’s prior annexation of Crimea may give some significant pointers for insurers considering the potential impacts.

Response to Crimea

Following the annexation of Crimea in 2014, the US and the European Union responded with financial and trade sanctions that were broadly aligned. Those sanctions remain in place to this day and include asset freezes on named individuals and entities, as well as so-called ‘sectoral sanctions’, restricting certain activity in relation to the Russian banking and energy sectors.

Stronger response expected?

However, a full-scale invasion of Ukraine would likely see significantly more extensive sanctions imposed against Russia. An un-named senior White House official, in a call with journalists on 25 January 2022, stated that "the gradualism of the past is out, and this time we’ll start at the top of the escalation ladder and stay there."

While Putin has been the president of Russia since 2012, the US, UK and EU leaderships have all changed since the Crimean annexation. This provides the current heads of state an opportunity to present a show of strength by imposing severe sanctions, learning from the past and seeking to define their future relationships. This is evidenced in the US’s announcements, and the UK’s recent expansion of its sanctions regime against Russia via amendments to existing legislation.

Scope of enhanced sanctions

Previously, the UK’s sanctions regime only allowed it to enforce sanctions on those linked to the destabilisation of Ukraine. The changes to the regime cover a much broader range of individuals and businesses, allowing sanctions now to be imposed on persons and entities due to their ‘significance to the Kremlin’.

The scope of any enhanced sanctions against Russia is a matter of speculation at this stage, but could include:

  • Additional individuals and/or entities being made the subject of asset freezes.
  • Further restrictions on key Russian sectors such as energy and extractive industries.
  • Pressuring the Swift messaging service for interbank payments to remove Russian banks.

In addition, the US has floated the possibility of prohibiting the export to Russia of critical US-origin technology products.

Vulnerable sectors

The Ukrainian financial sector has struggled to recover since the Crimean annexation in 2014. Hopes of substantial investment as part of the Chinese ‘belt and road’ initiative did not materialise and, while international investment was slowly returning, it plummeted again during the pandemic and now as a result of the threat of another Russian attack. Ukraine’s steel and energy industries, as well as port access and air bases, are considered particularly vulnerable if an invasion were to take place.

Measures insurers should consider implementing

Given the uncertainty as to whether, and if so to what extent, further sanctions against Russia might be imposed, it would not be possible for insurers to take targeted steps to mitigate the potential impact of such sanctions. That said, there are a number of general measures that insurers could enact now with a view to being in the best position possible to assess and minimise the impact of enhanced sanctions if or when they come into force. 

These measures include reviewing records of insureds and/or insured risks to determine (to the extent that it is reasonably possible):

  1. How many insureds are Russian individuals or entities or have ultimate beneficial owners (UBOs) who are Russian individuals or entities.
  2. Whether any such Russian insureds or UBOs are Politically Exposed Persons.
  3. Whether any such Russian insureds or UBOs are involved in key sectors of the Russian economy (e.g. energy and extractive industries).
  4. How many insured risks have a nexus to key sectors of the Russian economy (i.e. non-Russian insureds doing business in Russia).

In addition, any insurers with investments or a presence in Russia should be mindful of the potential for Russia to take retaliatory action in response to the imposition of enhanced sanctions.  The form of such retaliatory action is a matter of speculation, but potentially could include making it a criminal offence to comply with any such sanctions.


Globally, the commercial impact of an invasion would be far reaching. Rising oil and gas (and, therefore, domestic energy) prices and supply shortages would be one of the first seen. Financial markets are likely to fall, and interruption to grain exports - 12% of the global grain trade passes through the Bosphorus every year - could add to increasing food costs.  Disruption to Europe’s car component supply chain (especially for digital devices, such as satellite navigation systems) and international tech companies - who employ hundreds of thousands in business process outsourcing within Ukrainian cities – is also likely.

Due to the sheer number and the nature of the global interests involved, there are many variables still at play. The current uncertainty surrounding the likelihood and timing of an invasion, as well as the nature and severity of sanctions which may be imposed, is leading to negative impacts already being felt. This means that insurers should act now in reviewing their portfolios in an attempt to mitigate their risk exposure.

Read other items in London Market Brief - February 2022

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