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JP Morgan says insurance fallout from Russia-Ukraine not seismic

20th May 2022 - Author: Pete Carvill

JP Morgan has posited that re/insurance industry estimates arising from Ukraine’s invasion by Russia will fall as more information emerges.

The viewpoint is put across in the firm’s latest Love Actuary, which focuses on the conflict in Europe.

JP Morgan wrote: “Whilst Q1 only showed part of the picture on claims, we are comfortable with the quantum of further potential claims in the remainder of the year. Names that stand out for us include: Zurich (OW) which is likely to only have minimal exposure; Munich Re (OW) which has extensive buffers and large loss budget remaining for 2022; Hannover Re (OW) which is likely to show similar defensive attributes to Munich Re; and Beazley (OW) where we believe the share price reaction is at odds with the exposure of the company.”

The non-life focused part of the sector, said JP Morgan, saw its share price performance fall since due end of February due to concerns over Russia/Ukraine. This, along with negative impact of Covid-19, dented the confidence of investors in this space.

Among the biggest share price declines with Lloyds’s firm were in Europe, where all the reinsurers are trading below levels seen when the conflict began.

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JP Morgan added: “For the Lloyd’s insurers, we saw material share price falls at Beazley and Lancashire due to concerns around aviation leasing claims and war exposures with Hiscox remaining relatively resilient. Beazley has since seen its share price recover following its Q1 22 trading update.”

However, it said that total industry loss is unlikely to be material across the context of the entirety of the insurance sector.

It added: “Swiss Re stated that based on its detailed work on the potential claims coming from Russia/Ukraine, it expected the industry loss to be at the lower end of the range it expects for mid-sized catastrophe losses of $10-20bn. This level was lower than the $15bn level that the company discussed at its Investor Day in early April 2022, suggesting that the initial fears about the size of the loss were in all likelihood an overreaction. In Figure 7 below, we show the industry loss for Russia/Ukraine relative to historical large loss events. It is clear that in a historical context, claims are unlikely to be anything more than an earnings event for the industry.”

It concluded: “Industry loss estimate of $10bn related to Russia/Ukraine is relatively manageable in comparison to other major loss events.”

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