Analysts at RBC Capital Markets are assuming industry aviation losses stemming from sanctions on Russia will total $2 billion, constituting only an earnings event for UK specialty P&C insurers.
Looking ahead to Q1 trading updates, RBC foresees loss exposures to the Russia-Ukraine conflict as being the many focus for many companies.
However, it acknowledges that definitive figures will likely only become available at a later date, given the situation’s fluidity, leaving an overhang into the second half of the year and possibly into 2023.
Analysts note that credit facilities are also available to many firms but any potential utilisation might be constrained by debt leverage levels.
Another lever in the case of insurers such as Hiscox and Lancashire is the cancellation of announced final dividends, which are due to be authorised at upcoming AGMs, they added.
For Lancashire specifically, RBC estimates that about three quarters of the company’s aviation business is underwritten through Lloyd’s, which is the main market where key exposures are likely to lie.
The syndicate filings include estimated losses on both gross and net bases from a prescribed worst-case aviation loss scenario of $4 billion.
Net losses look to be around $80 million which implies a 2% loss share, with a heavier share on its aviation reinsurance book.
RBC’s assumption of a $2 billion industry aviation loss aligns with Lloyd’s rough indication giving a $40 million net impact for Lancashire and incorporates another $10 million of losses from other lines.
It also collates the commentary to date from the companies and other key stakeholders including AerCap, the main lessor of Russian planes.