KBW: European reinsurers “under-reserved” if Ukraine war a $15bn+ loss
Europe’s major reinsurers will need to bolster reserves in both marine and aviation lines if the conflict between Ukraine and Russia generates an industry loss of $15bn or more, KBW’s insurance equity research director Darius Satkauskas has warned.
Speaking to The Insurer TV during a recent Close Quarter episode, Satkauskas said marine and aviation could come “under serious pressure in the near term”, despite surpluses of roughly 8 percent across these lines at the end of 2020.
The analyst cautioned that while these redundancies “feel rather large”, they could not be enough to absorb the impact of losses stemming from the conflict.
He added that of the industry-wide consensus of around $15bn of losses stemming from Russia-Ukraine, it is expected that 40 percent could fall to reinsurers.
Satkauskas noted that large players such as Munich Re and Swiss Re, which have market shares of roughly 10 percent, could be most affected with potential losses of up to $600mn.
“What the companies have provisioned so far is nowhere near these numbers,” he warned.
“We think that most reserves are likely to increase in the near term, putting pressure on these lines. What this is going to lead to is potentially some notable pricing momentum when these lines renew,” he added.
Europe’s four major reinsurers booked $624mn of Russia-Ukraine reserves in aggregate during the first quarter of 2022.
Swiss Re accounted for $283mn of this total, a figure which included a $129mn impact within its Corporate Solutions segment. The reinsurer has said it expects market losses to be closer to $10bn than $15bn and said its Q1 reserves will likely cover a “significant proportion” of its ultimate losses from the war, stating that it is underweight in many of the impacted classes.
Hannover Re booked €143mn of reserves during Q1 – a figure which excludes aviation losses – while Munich Re booked losses of just over €100mn but is expected to record the majority of its Russia-Ukraine reserves in Q2. Scor said €85mn was the best estimate of its Russia-Ukraine losses at the Q1 stage.
Inflationary pressures
Satkauskas was speaking to The Insurer TV following a recent KBW report examining the largest European reinsurers’ reserves.
He said inflationary pressures – both structural and social – have been “eroding” European reinsurers’ reserve adequacy for a few years.
The report highlights signs of inflationary pressures and, in some cases, inadequate provisions across specific subsectors.
Marine and aviation were among the sectors identified in the report as showing a declining surplus trend, alongside classes such as property and engineering. Satkauskas said liability lines have largely remained under pressure amid a recent acceleration in reported losses.
Click below to watch the full nine-minute interview: