Russia president Vladimir Putin’s invasion of Ukraine conflict will add uncertainty and exacerbate earnings volatility in global reinsurers’ specialty lines, although their direct asset exposure is minimal, said S&P Global Ratings in a report published recently.
“For most of the top 21 global reinsurers we rate, asset exposure to Russia and Ukraine is not material, representing less than 2% of total adjusted capital and below 1% of total assets,” said S&P Global Ratings credit analyst Johannes Bender. However, on the liability side, the report noted that reinsurers are more exposed to the war, particularly in specialty lines such as war risk, political violence and cyber risk, said the report.
S&P sees losses in the speciality insurance market of $16bn-35bn from the Russia-Ukraine war. These include possible aviation insurance losses totalling $6bn-15bn, depending on scenarios. Other speciality lines likely to be affected by the conflict include cyber, political risk and marine war insurance.
The ratings agency’s scenario analysis indicated that losses from specialty lines are likely to be an earnings event for most reinsurers but could become a capital event for a few outliers. “We believe global reinsurers will likely assume about one-half of the potential specialty insurance losses,” said the report.
It added, “Our sector outlook on the global reinsurance industry is negative, reflecting ongoing challenges to meet cost of capital, worsened by first-quarter natural catastrophe losses, the Russia-Ukraine conflict, and rising inflation.
“At the same time, we expect reinsurance positive pricing momentum to continue in the upcoming renewals in 2022. Furthermore, capitalisation remains a key strength for the sector.” M