Global Insurance Losses From Russia-Ukraine War Could Range From $16B to $35B

World insurance coverage losses from the Russia-Ukraine struggle may vary from $16 billion to $35 billion, with reinsurers anticipated to imagine 50% of these claims, in response to a report printed by S&P World Scores.

Whereas current articles within the press have centered on the trade’s aviation publicity to leased jets which have been confiscated and grounded in Russia, different specialty traces are additionally in play – equivalent to commerce credit score, political danger (contract frustration, agriculture, and commodities), cyber, political violence, and marine hull struggle, mentioned S&P.

“We share the view of main market gamers that the continued battle will symbolize a serious declare to the market in 2022. We consider that specialty traces would be the most uncovered, with aviation hardest hit,” mentioned S&P in its report titled “Russia-Ukraine Battle Provides to a Bumpy Begin to 2022 for World Reinsurers.”

This week, for instance, Dublin-based AerCap Holdings, the world’s largest plane lessor, introduced it has submitted a $3.5 billion claim to its insurers.

By itself, aviation losses may vary from $6 billion to $15 billion of the general potential claims of $16 billion-$35 billion, which can take prolonged authorized wrangling in courts and a few years to settle, the report indicated. For the needs of comparability, S&P cited the instance of a New Jersey court docket that earlier this yr dominated in favor of the U.S. pharmaceutical firm Merck & Co. for a $1.4 billion declare in opposition to its insurers beneath its all-risk property insurance coverage coverage following the 2017 NotPetya cyber assault.

Regardless of the final price ticket is for the Russia-Ukraine struggle, international reinsurers are prone to assume about one-half of the potential specialty insurance coverage losses, leading to an earnings occasion for many reinsurers and a capital occasion for just a few outliers, mentioned S&P.

S&P checked out three situations to develop its estimates.

Situation 1

Below Situation 1, S&P calculates a $16 billion complete loss, which assumes international insured aviation losses of $6 billion and $10 billion from the opposite specialty traces. (The highest 21 international reinsurers are prone to carry 50% of that quantity, S&P mentioned. See beneath for S&P’s listing of prime 21 reinsurers).

Diving into its aviation loss calculations, S&P mentioned this base-case assumption in Situation 1 displays trade experiences that solely 78 plane out of 515 plane leased to Russian airways have been safely recovered.

“From discussions with market contributors, we perceive that the appraised insured worth of all of the 515 plane is about $12 billion,” mentioned S&P, noting, nonetheless, the insured loss is prone to be decrease due to the 78 recovered plane. “We additionally assume that some protection has been cancelled and a few potential court docket choices don’t foresee the very best sums insured and protection.”

Situation 2

Below Situation 2, S&P calculates a better determine for aviation and specialty traces’ losses of a complete of $27 billion, comprising $12 billion and $15 billion, respectively. (As soon as once more, the highest 21 international reinsurers are prone to carry 50% of that quantity).

Its calculation for aviation claims broadly displays “the appraised insured worth of the 515 plane, that almost all insurance policies will not be cancellable, and {that a} majority of potential court docket choices fall in favor of lessors versus insurers when it comes to sums in danger,” S&P continued.

Situation 3

Below Situation 3, the full losses for aviation and specialty traces attain a complete of $35 billion, which assumes aviation insured losses of $15 billion and specialty traces losses of about $20 billion. (The highest 21 international reinsurers could possibly be on the hook for 50% of that quantity).

Detailing its assumption for aviation, S&P mentioned it displays “even greater losses in comparison with the appraised insured worth.”

“This displays potential uncertainties surrounding the precise insured worth, the belief that the overwhelming majority of insurance policies will not be cancellable, and that the overwhelming majority of potential court docket instances rule in favor of lessors with the very best doable insured sums in danger (if, for instance, the insured occasion is assessed as theft as an alternative of an act of struggle),” the report added.

These three situations carry “vital uncertainties,” however present “a sign of the potential exposures for the worldwide insurance coverage trade and the share that could be assumed by the highest 21 international reinsurers,” the report went on to say.

Nonetheless, S&P mentioned, the reinsurance sector’s annual anticipated pre-tax revenue of about $22.5 billion, coupled with the pure disaster finances of about $13 billion, ought to present a ample buffer to soak up these losses.

“Nonetheless, we consider that for just a few reinsurers with a big aviation market share or aviation losses together with different losses stemming from the Russia-Ukraine battle, it may change into a capital occasion.”

S&P’s listing of 21 international reinsurers are:

1. Hannover Rueck SE
2. Lloyd’s
3. Munich Reinsurance Co.
4. SCOR SE
5. Swiss Reinsurance Co. Ltd.
6. Alleghany Corp.
7. AXIS Capital Holdings Ltd.
8. Everest Re Group Ltd.
9. Fairfax Monetary Holdings Ltd.
10. PartnerRe Ltd.
11. RenaissanceRe Holdings Ltd.
12. Arch Capital Group Ltd.
13. Ascot Group Ltd.
14. Aspen Insurance coverage Holdings Ltd.
15. China Reinsurance (Group) Corp.
16. Fidelis Insurance coverage Holdings Ltd.
17. Hiscox Insurance coverage Co. Ltd.
18. Lancashire Holdings Ltd.
19. Markel Corp.
20. Qatar Insurance coverage Co.
21. SiriusPoint Ltd.

Associated:

Subjects
Profit Loss
Russia
Ukraine