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Hannover Re’s Ukraine war provision excludes potential aviation losses: CFO Jungsthöfel

4th May 2022 - Author: Luke Gallin

After reporting an additional general provision in the low triple-digit million euro range in relation to the ongoing war in Ukraine, Hannover Re’s Chief Financial Officer (CFO), Clemens Jungsthöfel, has explained that this does not include additional reserves for the aviation line of business.

This morning, the German reinsurer announced a major loss expenditure of €336 million in Q1 2022, which is above the budgeted amount of €284 million Hannover Re set for the quarter.

Alongside the impacts of Australian floods, windstorms Ylenia/Zeynep, and the sinking of the Felicity Ace cargo ship, the carrier also strengthened its reserves for certain lines where losses may have been incurred owing to Russia’s invasion of Ukraine.

In its Q1 presentation, Hannover Re says that its Ukraine/Russia reserve is around 3% of net premium earned, which implies a provision somewhere near the €150 million mark.

Speaking later in the day on the company’s first-quarter 2022 earnings call, CFO Jungsthöfel addressed the firm’s major loss experience in the period, and specifically the uncertain situation in Ukraine.

“As explained, we do not yet have sufficient information available to fully assess the impact of the war in Ukraine. Therefore, the reserving we have done in the course of closing our books for Q1 is not on an individual treaty basis,” said Jungsthöfel. “We have rather strengthened reserves for certain segments in property and in marine where losses might have been incurred. In property, this is based on the exposure for political violence and for war on land.”

“As the question will likely be raised, let me state that we have not set up any additional reserves for aviation. Based on the information available and in-depth discussions with clients, we do not have a sufficient basis to set up any IBNR for this segment as of today,” he added.

Aviation is one area of the market expected to take fairly significant hit from the war in Ukraine, with many insurers and reinsurers stating this is a line of business where losses are likely to develop.

As reported widely in the media, it’s understood that some 500 planes were left stranded in Russia after the invasion began, with some analysts suggesting a $10 billion loss for the aviation sector in a worst-case scenario.

Given the uncertainty, Hannover Re clearly feels it’s currently unable to accurately reserve for potential aviation losses related to the war, but that could change as the conflict develops and the market moves through 2022.

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