Recent geopolitical developments in Venezuela have brought tail risks to the global insurance industry back into focus, particularly in specialty property and casualty (P&C) lines across marine, aviation and trade credit in the Caribbean, according to a new report from Morningstar DBRS.
It has been widely reported that U.S. troops have captured President Nicolás Maduro in a massive operation in Venezuela and sent him to New York to face long-running U.S. criminal charges.
Venezuela’s Supreme Court has appointed Vice President Delcy Rodriguez as interim president amid deepening political uncertainty amid reports of a state of emergency and armed conflict in Caracas.
Since then, the United States has claimed control of Venezuelan oil exports and seized oil tankers related to Venezuela.
DBRS Morningstar noted in the report that Venezuela has long been a difficult operating environment for international insurance companies due to years of severe economic contraction, persistent high inflation and currency volatility, strict currency controls, widespread international sanctions, and significant legal and regulatory uncertainty that complicates contract enforcement and risk management.
These conditions have prompted many global insurers to significantly downsize or exit the market, reducing direct premiums and limiting risk capital.
As a result, Venezuela has increasingly ceased to be a significant contributor to earnings or risk for most large insurance groups.
Despite this tightening, the above-mentioned geopolitical developments have refocused Venezuela as a source of risk, primarily through regional spillovers, according to Morningstar DBRS.
“Law enforcement actions, sanctions and heightened security activities related to Venezuelan trade and transportation could impact waterways, ports and airspace throughout the Caribbean Basin,” the company’s report explains.
Morningstar DBRS continued: “These corridors are insured globally, meaning risk can spread far beyond Venezuela’s borders. For insurers, this dynamic illustrates how geopolitical risk can shift from country-specific issues to regional and multi-front risks.
“Even in the absence of large insured losses, changes in perceived risk can lead to rapid repricing, tighter terms and changes in reinsurance availability, all of which can impact underwriting profitability and volatility.”
From a credit perspective, Morningstar DBRS observes that key transmission channels are indirect rather than balance sheet driven, and most international insurers’ direct underwriting and investment exposure to Venezuela remains limited.
The company continued: “However, heightened geopolitical tensions increase the risk of earnings volatility, professional book loss accumulation, sanctions-related underwriting disputes and claims friction, all of which could gradually impact the credit profile of insurers operating in the region.”
DBRS Morningstar concluded: “We do not believe that current geopolitical tensions related to Venezuela pose a systemic threat to the global insurance industry. International insurers’ direct exposure to Venezuela remains limited and overall industry capitalization is generally strong.
“Nonetheless, this scenario illustrates how regional geopolitical developments can quickly translate into tail risks for specialist property and casualty lines, particularly marine and aviation, with secondary impacts on political risk, trade credit, energy-related risks and travel insurance.
“For insurers with diversified portfolios, disciplined underwriting and tight sanctions controls, the credit impact should be manageable. However, for more focused specialist underwriters, current events remind us that geopolitical risk remains an ongoing and potentially destabilizing feature of the operating environment that requires active, ongoing management.
Marcos Alvarez, managing director at Global Financial Institutions Ratings, commented: “For insurers with diversified portfolios, tight underwriting and tight sanctions controls, the credit impact should remain manageable.
“However, for more focused professional writers, current events remind us that geopolitical risk remains an ongoing and potentially destabilizing feature of the operating environment that requires active, ongoing management.”
