Hannover Re's €143M Russia-Ukraine war reserve excludes aviation claims

Hannover Re's low triple-digit million euro reserve for claims from the Russia-Ukraine war excludes potential aviation losses, CFO Clemens Jungsthöfel told analysts.

The insurance industry faces billions of dollars of claims from hundreds of leased aircraft stranded in Russia by the war, but the claims are expected to take many years to resolve, and the final bill is highly uncertain.

Hannover Re has established a "precautionary reserve" for claims from the war amounting to about 3% of the €4.78 billion net earned premium of its property and casualty reinsurance business in the first quarter of 2022. But Jungsthöfel said the company had not set up any reserves for aviation losses so far. "Based on the information available and in-depth discussions with clients, we do not have sufficient basis to set up any [incurred but not reported reserves] for this segment as of today," he said on a call for Hannover Re's first-quarter 2022 earnings.

Incurred but not reported reserves are funds set aside for claims that an insurer or reinsurer expects to receive but that have not yet been filed.

The reserve covers the classes of business "where we have to assume that losses have actually incurred at this stage," Sven Althoff, an executive board member at Hannover Re, said on the call. These include political violence, war on land, marine war and hull war in particular, he said.

On trade credit insurance, another class of business with potential exposure to the war, Althoff said payments for goods and services continued to flow, although in some cases into trust accounts.

Insurance coverage of aircraft leasing and political risk losses stemming from the war "really depends significantly on the world after the war and how the various parties involved structure the post-war situation," Althoff said. For aviation specifically, there is a "very complex situation" around which policies could respond to losses, the effect of policy cancellations after the outbreak of the war and the effect of sanctions. "It's much too early to speculate about the outcome on the aviation side," Althoff said.

Hannover Re's Ukraine war reserve as a whole should be seen as "a reflection of the exposure in some specialty lines," CEO Jean-Jacques Henchoz told analysts, and at this stage "we do not have sufficient information available to come up with a reasonable estimate for an ultimate loss."

Catastrophe claims

The Ukraine war reserve came on top of a major loss bill of €335.8 million in the first quarter, which exceeded Hannover Re's budget for such losses in the quarter by €52 million. The biggest contributors were the floods in Australia, which cost the reinsurer €185.6 million, net of retrocession, and the February storms in Europe, for which it paid out €124.2 million in the quarter.

Group net profit was down 13.8% to €264 million in the first quarter of 2022 from €306 million in the same quarter of 2021.

Despite continuing uncertainty about the ultimate claims bill from the Ukraine war, the company said it continued to expect it would make a net profit of between €1.4 billion and €1.5 billion for 2022, assuming major loss expenditure does not materially exceed €1.4 billion for the year.