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Limited war losses so far, but key uncertainties remain: RBC

16th May 2022 - Author: Luke Gallin

First quarter 2022 results season has shown that reserving assumptions for Russia’s invasion of Ukraine varied widely, with limited reported losses of $1.3 billion against an industry loss range from the war of $10 billion to $15 billion, according to analysts at RBC.

In a recent note on UK specialty property and casualty (P&C) insurance, RBC argues that lowered war risks support an improved outlook for carriers.

According to analysts, reported war losses to date have been lower than feared, meaning that capitalisation is less of a concern going forwards.

The uncertainty around the war and potential losses for insurers and reinsurers, meant that in almost cases, the reserves booked in Q1 2022 comprised almost entirely of IBNR, with reported claims amounting to just $1.3 billion.

“Impacted lines were largely as expected and there is acknowledgement across the board on the complexity in aviation exposures, with legal entanglement likely,” say analysts. “The European reinsurers have posted the largest losses to date, suggesting that loss exposures might be less concentrated within the primary Specialty writers than some had feared.”

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As noted by RBC, the industry loss from the war in Ukraine seems to be around the $10 billion to $15 billion range, meaning Q1 2022 reported losses account for around 10% of the range.

While this could imply that the range is somewhat conservative, analysts emphasise that further exposures might arise with the war ongoing and the high degree of uncertainty around potential aviation losses.

“We do note preliminary signs of this loss being more heavily reinsured than a typical nat cat event, but it’s unclear to what extent this impacts the available protection left with hurricane season still to come,” says RBC.

Looking forward, analysts say that while further losses a probable, it appears as though Q1 reserves have accounted for the bulk of the ultimate exposures.

“Key uncertainties at this stage are around the war’s duration, aviation losses, and any potential systemic cyber events.”

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