According to Deutsche Bank, at the end of February credit insurer Coface’s total exposure to Russia’s invasion of Ukraine equated to EUR 5 billion, with 95% Russia, and 5% Ukraine, which is equivalent to less than 1% of total group insured exposure.
The bank explained that this exposure has a duration of 6-12 weeks on average and in light of the current backdrop, and that it would expect this to significantly decline in the coming weeks.
Of this EUR 5 billion exposure, approximately half is domestic exposure, with the other half export business.
Within this latter half, approximately 40% relates to pharmaceutical and agricultural lines, including pharmaceutical companies sending drugs to Russian hospitals, which are generally considered to be fairly resilient.
Given the RUB depreciation in recent weeks, the domestic exposure has likely reduced to EUR 1.0-1.5 billion.
The bank noted that at this stage, however, while there could clearly some pressure from an economic slowdown in Russia, it does not believe losses should be that significant.
Potentially more relevant is the other half of the business. Although total potential insured exposures here amount to EUR 2.5 billion, Deutsche Bank believes that many companies have utilised only 50-60% of their limits – i.e. the real potential insured exposure here is closer to EUR 1.5 billion.
Typically, in normal market conditions, losses equate to 10bps of insured exposures, with the bank estimating that in a medium stress scenario, this could stretch to 1% but in a more severe stress scenario, this could rise to 5%.
The bank further explained that in real money terms, this more severe stress equates to EUR 75 million pre-tax – equivalent to 30% of current consensus expectations for 2022 earnings. For conservatism, this could rise to EUR 100-125 million.
By way of reference, this feels broadly aligned with Allianz’s current guidance for Euler Hermes of potential losses in the low-triple-digit millions, and the relative exposures/scale of the two businesses.