Analysts at Bank of America (BofA) have warned that the scale of losses incurred by London Market insurers and reinsurers during the first quarter of 2022 will remain uncertain for some time yet due to the ongoing uncertainties around exposure to the conflict between Russia and Ukraine.
Although the key area of uncertainty is in aviation, BofA cautions that a number of other war exposures present potential issues, and may add to a Q1 loss period that has already been over-budget for natural catastrophe costs.
Analysts assured that the unambiguous losses to the London Market from Russia invasion of Ukraine will be largely manageable, with costs mainly set to be recorded across political risk and credit, aviation and marine lines.
However, the fate of some 500 Western-leased jets stranded in Russia still remains unclear, and is likely to cast a shadow over the London Market for some time, due to the size and complexity of the potential loss.
BofA believes that the range of potential outcomes for this issue is wide, ranging from minimal losses if planes are successfully repatriated to significant losses if planes are unrecoverable.
With the conflict showing no signs of de-escalation, analysts also expect war losses to continue to hit balance sheets through Q2, adding further pressure following an active start to the year for nat cat and other man-made losses.
“London Market insurers have had a tough start to 2022,” BofA stated in a recent report. “Heightened uncertainty around potential war exposures in global specialty lines … have clouded the outlook and led to a material de-rating.”
“Despite extremely compelling valuations, we think continued investor caution is warranted at this stage, given the highly uncertain outlook and limited disclosure provided by companies,” it continued.
“We hope Q1 will help to provide more clarity, but given ongoing developments in the war, we think it is unlikely issues will be resolved in the near-term.”
