Q1/22 reinsurance update – how political risk shapes the market

May 9, 2022 I London, UK

Total insured losses for the first quarter of 2022 could peak at close to US$ 30 billion.  The combination of the ongoing situation in Ukraine and natural catastrophes in Europe, Japan and Australia has taken a heavy toll.

This tragic and continuing conflict is expected to be the biggest single event for the reinsurance industry in Q1, 2022, with experts forecasting losses in excess of US$ 20 billion.[1]  In response, reinsurance rates continue to remain hard, and underwriters may further tighten terms ahead of the mid-year July renewals.

In our latest JENOA Insights article, we review the specialty lines expected to be worst hit.

Political violence

The London political violence (PV) market is widely expected to incur losses of around US$ 3-5 billion in magnitude as a direct or indirect result of the conflict in Ukraine.[2]  A wide range of businesses, with Ukrainian-based operations reinsured by the London market, are likely to be impacted.  Also, given that PV is often rolled into reinsurance treaties for aviation and marine, with the associated likelihood of significant losses in these areas too, there is a potential for losses to be taken net, if reinsurance cover is exhausted.  However, this largely depends on the interpretation of loss triggers and event definitions.

Among the most significant PV exposures is the 250 MW Syvash wind farm in the Kherson region, in the country’s south.  The London market is braced for a US$ 220 million loss after shelling caused it to be shut down.  Once completed, the farm, which cost in the region of US$ 410 million to build, was set to become the country’s largest renewable energy project, with 64 turbines.

The ultimate PV market loss could be determined by key policy wordings and terms.  For example, ‘war perils’ are not included in many terrorism and PV policies, and the majority notably exclude risk or loss as a result of chemical, biological, radiological and nuclear attacks.

Political risk is another area that has been adversely impacted. Some insurers have responded to the heightened exposure by adding exclusions or not writing the risk altogether, resulting in limited available coverage and pushing rates up.


Cyber-attacks stemming from conflict are becoming ever familiar, and the recent situation is now different with claims of multiple instances already and more are expected.  While most cyber policies cover companies against business interruption losses caused by such an attack generally, they traditionally exclude geopolitical conflicts.  Yet grey areas may also leave insurers open to claims resulting from cybersphere threats.

Munich Re is reportedly planning to add new exclusions for war to its cyber policies to avoid coverage disputes, based on wording developed in the Lloyd’s market last year.  Others have responded to the growing cyber threat by raising rates, some by double digits.


The conflict has led to the imposition of economic sanctions on Russia, shutting its aviation and space sectors out of the reinsurance market.  With reports of some 500-plus Western aircraft leased to Russian airlines having become stranded in the country at the outbreak of hostilities, aviation industry losses have been estimated at US$ 2 billion.[3]

This follows two years when the sector was hit hard by the COVID-19 pandemic, with fleets having to be grounded and travel restricted by safety and social distancing measures.  The new sanctions have merely added a host of logistical and financial challenges for airlines, aerospace firms, lessors and financiers.

For example, there have been preliminary indications that all non-Russian planes still in the country after the termination of leasing contracts in March will remain there indefinitely and also plans to nationalise some foreign-made planes grounded within its borders will commence, estimated to be worth about US$ 10 billion, which analysts believe could result in a historic loss for the aviation market.[4]

Such a loss may cause some underwriters to reduce cover, or exit the market altogether, as upward pressure is exerted on pricing, notably for conflict and excess conflict theft protection business.  Given the highly complex and volatile situation, aviation claims could also take years to resolve.


Another area that is expected to take the brunt of losses is marine.  The main causes are physical damage to commercial vessels and port or terminal losses, as well as cargo-related losses, including spoilage.

Underwriters have responded to the growing threat by ramping up premiums for ships passing through the Black Sea and the Sea of Azoz.  The Joint War Committee (comprising underwriting representatives from both the Lloyd’s and International Underwriting Association company markets has labelled many such areas as higher risk, requiring ship owners to contact their underwriters if they want to enter them.

Vessels that dock in Russian ports in proximity to the conflict are being excluded or, at best, are incurring a rate adjustment, ranging from  0.25-5%.[5]  This may equate to six or seven-figure monetary increases per voyage, depending on the hull value.

Some insurers have gone a step further and excluded marine cover for all vessels and shipments being taken to countries that are directly affected.

Natural catastrophes

In addition to the conflict, natural catastrophes have continued to take their toll on the reinsurance industry.  One source has estimated that Q1 losses could top US$ 14 billion.

Losses arising from the February windstorms across Europe are forecast to be around US$ 4.3 billion, whilst the earthquake in the Fukushima region of Japan in March is likely to result in losses of more than US$ 2 billion.  

In addition, losses from the severe convective storm outbreaks in the USA and recent floods in New South Wales and southeast Queensland, Australia, are estimated to reach US$ 1.9 billion.[6]

These examples signify that this may now be the sixth year in a row that Q1 losses have exceeded US$ 10 billion.  The losses have been amplified by major earthquake events, such as those in Croatia and Japan in 2020, and 2021, respectively, as well as secondary perils including winter weather, flooding and severe convective storms. 


According to Standard and Poor’s (S&P) Global Ratings, inflation is expected to peak at 6% in 2022, and those increased costs will be passed on to the reinsurance sector.[7]  This will make it increasingly difficult for reinsurers to meet their cost of capital for the fifth successive year.  They will also have to contend with increasing claims inflation, which could impact earnings by creating further volatility for their long-tail reserves.  

The problem has merely been magnified by the current ongoing conflict, however, on the flipside, reinsurers’  investment portfolios may benefit from rising interest rates as central banks attempt to curb inflation but they also may be exposed to the financial market uncertainty and volatility from it. 

As a result of all these different factors, S&P has maintained a negative outlook on the global insurance industry. This reflects its expectation on credit trends over the next 12 months, including existing and emerging risks.

Offsetting the rise in inflation and financial market volatility is the fact that the reinsurance market is still benefitting from a healthy level of capitalisation, having recovered from the pandemic losses of 2020. Another positive is that underwriting discipline remains strong.

As we move towards the second quarter, many of these challenges will continue to intensify.  But, given its strong capital position going into 2022, the reinsurance industry is well-placed to respond to them.