The insurance rating firm AM Best said it has moved its country risk tier for Russia to a CRT-5 from a CRT-4 to reflect the “significantly heightened geopolitical, economic and financial system risk” in the country.

Sanctions against Russia have targeted the financial system, resulting in a deeply challenging and unpredictable operating environment for insurers, according to AM Best. Volatility in capital and currency markets has increased liquidity risks. Additionally, capital controls and the impact from sanctions will negatively affect cross-border payments.

AM Best said it determines country risk levels by assessing country specific factors that could adversely affect an insurer’s ability to meet its financial obligations. Country risk is evaluated and factored into all AM Best ratings.

Countries are place into one of five tiers, ranging from CRT-1 (Country Risk Tier 1)—denoting a stable environment with the least amount of risk—to CRT-5 (Country Risk Tier 5)— for countries that pose the most risk, and therefore the greatest challenge to an insurer’s financial stability, strength and performance.

The Country Risk Tier of CRT-5 for Russia reflects “very high levels of economic, political and financial system risk,” AM Best said.

AM Best incorporates country risk into its analysis of balance sheet strength, operating performance and the business profile for all rating units. Analysis is done of each rating unit’s country of domicile as well as country of operation (e.g., regulation, asset and insurance exposure).