Russia-Ukraine war likely an ‘earnings event’ for global reinsurers, capital for some

Specialty line losses stemming from the ongoing Russia-Ukraine conflict are likely to be an “earnings event for most reinsurers, but could become a capital event for a few outliers”, analysts at  S&P Global Ratings have warned.

S&P's latest analysis indicates that global reinsurers will likely assume “about one-half of the potential specialty insurance losses”, despite having minimal direct asset exposure.

The Russia-Ukraine conflict will add “uncertainty and exacerbate earnings volatility” in global reinsurers' specialty lines, according to a new report titled ‘Russia-Ukraine Conflict Adds To A Bumpy Start To 2022 For Global Reinsurers’.

“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, we believe reinsurers are more exposed to the conflict, particularly in specialty lines, the industry segment that writes more difficult or unusual risks, such as war risk, political violence, and cyber risk.”

S&P's 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, it expects reinsurance positive pricing momentum to continue in the upcoming renewals in 2022. Furthermore, capitalisation remains a key strength for the sector.