Industry grapples with wide-ranging Ukraine war loss estimates

A great deal of uncertainty remains as to the extent of the insured losses from the ongoing fighting in Ukraine, some of the estimates ranging from more than $10bn to as much as $35bn.

Lloyd’s chief executive, John Neal, has warned the full extent of the losses could take years to be properly revealed, due to legal battles over technicalities.

The latest estimate came from Property Claim Services (PCS), which said insured losses arising from the Russian invasion of Ukraine could range from $13.05bn to $23bn.

Stressing the caveat that the loss figures are preliminary, PCS said its working estimate for insured losses stemming from the conflict is $20.6bn.

However, last week S&P Global Ratings issued a report that claimed the Russia-Ukraine war could result in insured losses of $16bn to $35bn, with specialty lines being the most exposed and aviation the hardest hit.

The rating agency said the top 21 global reinsurers are likely to assume around 50% of the specialty lines losses, adding those losses “are likely to be an earnings event for most reinsurers but could become a capital event for a few outliers”.

Analysts at JMP Securities said losses arising from the war are likely to be concentrated among a small pool of carriers given the niche lines affected. 

One area of particular concern is aviation losses, with the fate of a small fleet of Western-owned but Russian-leased planes that have effectively been seized by Russian authorities remaining a worry for the industry.

The $3.5bn insurance claim lodged by AerCap, the world’s largest aircraft leasing company, to cover the potential loss of its planes and engines that remain stuck in Russia will have worried insurers.

The PCS estimate includes $7bn to $13bn insured losses in aviation lines, with a current working estimate of $10bn.

Under one scenario, S&P said it sees $6bn of aviation losses and $10bn of other specialty lines losses, reflecting reports 78 out of 515 aircraft (with total insured value of around $12bn) leased to Russian airlines have been recovered.

Under the costliest scenario outlined by S&P, aviation losses would hit $15bn and other specialty lines $20bn, with the majority of policies not cancellable and the majority of court cases ruled in favour of lessors.

In marine lines, PCS expects $3bn to $6bn in insured losses, with a working estimate of around $5bn. Energy lines are expected to see $1bn to $4bn of insured losses, with a working estimate of $2.5bn.

PCS expects the insurance industry to field at least $2bn in property per-risk claims, although it did not list a top end to the expected range owing to uncertainties. Its working estimate for property per-risk losses is around $3bn.

Rounding out the loss estimate, PCS expects the conflict to generate only $100m of personal and small commercial property losses, in part owing to the low insurance uptake in Ukraine.

Looking at the likely losses faced by individual companies, Swiss Re is facing reinsured claims from the war in Ukraine of around $500m, analysts at Jefferies said.

The estimate from Jefferies is based on a reinsurance industry loss of $5bn, with Swiss Re taking a market share of 10%. The loss estimate for Swiss Re is broadly in line with analysts’ €500m estimate for Munich Re.

Scor is expecting to book claims relating to the Ukraine crisis in the “high double-digit” million Euros in the first quarter of the year.

S&P’s sector outlook for the global reinsurance insurance is negative, reflecting ongoing challenges to meet the cost of capital, which has been exacerbated by first-quarter catastrophe losses, Russia’s invasion of Ukraine and rising inflation. However, the industry remains well capitalised and positive reinsurance pricing momentum is expected to continue in upcoming renewals, S&P said.

The reinsurance sector has “sufficient buffer” to handle the war-related losses, given its annual pre-tax profit of around $22.5bn and catastrophe budget of around $13bn, S&P said.