Other major insurers are looking to exclude Russia, Ukraine, and even Belarus from a variety of policies, according to sources who spoke with insurers and policyholders.
Reuters was unable to ascertain whether the potential reduction in coverage would apply to all AIG policies in the countries. The insurer did not respond to a request for comment.
"We are now seeing underwriters beginning to introduce Russia, Ukraine wording into their policies," said Meredith Schnur, managing director, U.S. and Canada cyber brokerage leader at insurance broker Marsh, declining to name the insurers.
Brokers like Marsh act as go-betweens for corporate clients and insurers, and they sometimes help write policies.
If AIG reduces coverage for businesses and corporations operating in Russia and Ukraine, it would be the first major insurer to do so, potentially paving the way for others to follow.
While Russia has become a no-go zone for many businesses as a result of sanctions imposed in the aftermath of Moscow's invasion of Ukraine, some multinational corporations continue to do business there and in Ukraine in sectors ranging from agriculture to energy. They need insurance to keep their businesses running.
Local businesses also rely on insurance to cover damage to goods, buildings, and vehicles, as well as employee injury or death. Reuters was unable to ascertain how much of AIG's business in Russia and Ukraine was focused on domestic companies.
According to its website, AIG has operations in Russia and is a major global player in sectors such as energy, construction, and cyber. It recorded net written premiums in general insurance totaling more than $26 billion last year.
'NON-NEGOTIABLE'
Sanctions against Russia are already causing insurers to withdraw coverage for restricted Russian entities and individuals, while sanctions on aviation insurance in the UK and Europe extend beyond individual companies to all Russian firms.
Insurance brokers such as Aon and Willis Towers Watson have halted operations in Russia, while reinsurers such as Munich Re and Swiss Re have stated that they will not write new business in the country, regardless of whether potential policyholders are sanctioned or not.
However, AIG and other underwriters are considering going even further, including language in insurance policies that exclude coverage for Ukraine, Belarus, and the Russian and Ukrainian operations of Western businesses, according to industry sources.
Insurers are concerned about the reputational risk of doing business in Russia, as well as property damage and delayed payments in Ukraine, where the war has ravaged the economy.
Some policyholders are already having difficulty finding insurance.
Last week, François Malan, chief risk and compliance officer at the French engineering firm Eiffage, stated that he was forced to accept an insurance exclusion for transporting cargo in waters near Ukraine.
"It was non-negotiable, it wasn't a price issue - it was non-covered," he explained.
Ships sailing into the Black Sea and Sea of Azov, which include Ukraine's coast, must carry additional war risk insurance, which requires a separate premium.
According to marine insurance sources, some insurers are also reducing their provision of this type of insurance due to the growing perils, which include being hit by projectiles or floating mines.
PANDEMIC PLAYBOOK
Insurers typically include specific types of exclusion in policies exposed to potential conflict, such as during the South Korean winter Olympics, but not entire regions, as in the case of the Ukraine crisis.
The decision to exclude risky areas of their business mirrors insurers' behavior in the aftermath of the COVID-19 pandemic.
Faced with estimated losses of $100 billion, insurers rushed to exclude COVID-19, then all pandemics, from policies.
After raising premium rates, many of them reported strong profits in 2021, the pandemic's second full year. According to some industry sources, the losses incurred as a result of these actions were less severe than anticipated.
Commercial insurers' losses from the Russia-Ukraine conflict could total up to $35 billion, according to S&P. In addition, says S&P, insurance sectors most likely to be affected are aviation, trade credit, political risk such as nationalization, cyber, political violence, and maritime war.
According to Swiss Re, insurance and reinsurance losses from the invasion are likely to be comparable to those from a medium-sized natural disaster, such as a hurricane.