Swiss Re has reiterated that losses from the Ukraine/Russia conflict appear to be a mid-sized nat cat event, narrowing estimated market losses to $10bn from $15bn previously estimated, according to a Goldman Sachs report for Q1.
The report noted that reinsurance and London Market names are potentially exposed in various lines, including aviation, credit & surety, some Specialty lines (political risk and political violence) and marine.
Although it is too early to estimate the final insured losses for specialty losses, a number of commentators have provided early estimates, ranging from $15 to $35bn, Goldman Sachs stated.
Swiss Re, as well as S&P Global, have both estimated that the reinsurance market (top 21 reinsurers) would likely pick up 50% of the loss, which is typical of a loss of this size.
The $10bn is Swiss Re’s best estimate but admitted the confidence level was low, given the range of outcomes.
The company believes the longer the conflict, the more losses it will see, in particular in the credit & surety lines as more companies go into bankruptcy.
On the other hand, an earlier-than-expected conclusion to the conflict would lead them to reassess its scenario and likely lead to some positive revision of losses, according to Swiss Re.
According to Goldman Sachs, clarity on the size and timing of the potential insurance losses from the Russia/Ukraine conflict would remove an overhang on the sector.
Goldman Sachs commented: “This latest $10bm market loss estimate is lower than the $15bn estimate we had assumed in our prior analysis, which was based on Swiss Re’s initial assessment.
“While we expect the booked loss to increase (not just for reinsurance but for the whole sector), we do not expect it to be as high as we had initially assumed and see $10bn as a more updated loss estimate and we note it is widely used by other reinsurers.”
According to the firm, these early estimates are concentrated on political and marine (including war cover) losses in Q1 and political violence as a line of business is most likely to incur losses in the short term.
The credit insurance requires some default to trigger, and the longer the conflict, the more credit insurance losses would be as more companies would go into bankruptcy.
Aviation lines would appear the most exposed lines of business, the report noted, as lessors have started to claim for planes stranded in Russia due to sanctions.
The firm said: “In our view, aviation losses will likely be larger for the London market names, albeit with much more uncertainty due to the nature of the exposure.
“For reinsurance companies, we believe the exposure to aviation losses are less compared to London Market names.”