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Fitch analysts view Russia-Ukraine war as a “contained risk”

11th September 2022 - Author: Matt Sheehan

The full extent of insurance and reinsurance losses stemming from the conflict between Russia and Ukraine remains a murky subject with many unknown factors, but analysts at Fitch Ratings are confident that the war will prove to be a “contained risk” for the market.

Speaking during a recent Global Reinsurance Briefing webinar, Brian C. Schneider, Senior Director and Global Head of Reinsurance at Fitch, acknowledged that the industry at large is still in the dark about where the overall loss figure from the war will end up.

He noted that there have been a variety of strategies utilised by individual companies in reserving for this event, with many looking to “bleed” in the results for losses on their estimates, as they come in.

This is similar to how many firms approached reporting for COVID-19 losses, much of which still remain incurred-but-not-reported (IBNR).

However, accompanying Schneider on the webinar panel was Robert Mazzuoli, Director at Fitch, who added that, unlike with the pandemic, most re/insurers will have been able to immediately drop their exposure to the conflict after an initial heavy loss.

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“We have to be aware that the industry – be it the cedants or the reinsurers themselves – will cut exposure to Russia and Ukraine relatively quickly, either because they have to, or because they consider it to be uninsurable or not to be priced,” Mazzuoli told viewers of the virtual webinar.

“So the timeframe that we’re talking about, where claims have erupted, is a relatively limited one,” he explained. “It’s between the outbreak itself, and then a couple of weeks to maybe one to two months later. So there are no new claims accumulating to a significant extent that are directly caused by the war itself. And so, in principle, it is a contained risk.”

So despite the ultimate level of losses remaining unknown at this point, Mazzuoli was keen to stress that the challenge facing re/insurers remains fundamentally different to excess mortality losses from COVID, where new losses have continued to accumulate over time.

“Unfortunately, I think we’re just going to have to be patient,” Schneider concurred.

“It is also going to be dependent on how much they’re willing to be able to estimate the aviation losses from the various lessors,” he added, referring to the fleet of stranded jets in Russia that have recently led to multi-billion-dollar lawsuits being brought against insurers.

“With those aircraft still trapped, we know there’s going to be a lot of legal ramifications that are going to take a lot of time to sort out,” Schneider warned.

The Fitch webinar took place alongside the release of the rating agency’s outlook on the global reinsurance industry, which remains neutral in light of the expectation that underlying profitability will remain broadly stable in 2022 and 2023.

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