Analysts at investment bank Berenberg have argued that Zurich’s exposure to Russia’s invasion of Ukraine and the resulting sanctions are minimal, while its reserves appear stronger than in the previous year.
It’s estimated that Zurich added $500 million to its already strong claims reserves in 2021, before reinsurance.
This is equivalent to 1.9% in terms of combined ratio and 9.7% in terms of BOP, meaning reported earnings would have been 10% higher assuming unchanged reserving strength.
On this basis, Zurich ranks alongside SCOR and below the other reinsurers we follow in terms of excess reserves.
However, this is a strong level for a composite, as composites rely more on diversification to offset exceptional underwriting losses whereas reinsurers rely more on their core balance sheet strength.
Berenberg believes that Zurich is opting for a similar approach to Hannover Re, using reserve buffers to reduce earnings volatility.
Looking at the exposure of Zurich to the conflict between Russia and Ukraine, Berenberg estimates that Zurich has $80 million of exposure to Russia in terms of non-life premiums and $50 million in terms of investments.
But these exposures represent just 0.2% of the group’s total non-life premiums, and only 0.02% of its total investments, meaning the risk to the company in these areas remains extremely limited.
However, Berenberg warns that Zurich may see defaults on its corporate bond portfolio, and for this reason has reduced its forecasts for the firm’s performance.
