While tensions with Russia have flared in the past, Putin’s invasion of Ukraine has raised the stakes for conflict between Russia and Western allies. Corporate leaders have started confronting this new reality, both in terms of demonstrating solidarity with Ukraine as well as increasing sanctions against Russia.
Companies like Shell, Exxon, and even shipping giants like Maersk have shut down business operations and dealings with Russia. What was once viewed as a promising new market has quickly turned cold overnight for these firms, threatening to further impact profitability as the COVID recovery was just beginning to take hold. Yet this threat to business disruption was not without warning. Political stability has been a key factor companies analyze when expanding into new overseas markets, although this analysis usually carries more weight with less developed markets. Companies can work to mitigate the damage of these types of business risks with risk transfer solutions and insurance coverages such as political risk insurance.
Back in 2015 when Russia targeted McDonald’s restaurants with what was perceived as politically motivated regulatory issues, the company missed its quarterly earnings targets. Similarly disappointing metrics are likely to impact many Western firms exiting Russian markets and navigating through newly imposed sanctions. For those who took notice during 2015 and hedged their operations with risk transfer solutions, the impact will be slightly more manageable. For the others, as the old adage goes, “one cannot buy insurance when the house is on fire.”
As the Russia-Ukraine conflict continues to unfold we will get greater visibility into the macro-level economic impact, however we are already seeing the insurance markets start to restrict their capacity as they brace for large losses ahead.
