For loss visibility through the fog of war, markets might pay a premium

Insurers achieving any measure of exposure visibility through the fog of war may be taking more than their fair share of accolades from the stock market's best and brightest ready to grant a premium for early transparency.

The early ranking:  Conduit Re leads the pack after brokerage analysts tired of endless caveats and qualifications as launched by  Hannover Re, epitomised by  AXA and not fully overcome by  Swiss Re.

Top management at listed insurers managed to sing at least one theme in perfect chorus during first quarter earnings calls: complexities and uncertainties stemming from the war in Ukraine are enormous. Many went to lengths to spell out the ups and downs, ins and outs, of exclusions, cancellations, trigger dates, limits and more for lines from aviation to political violence.

But on the question of how potential losses ought to be booked in Q1, cacophony ruled. Every firm selected its own, presumably most self-flattering, approach.

France-based global re/insurer  AXA took the brunt of the ire for having held its cards entirely, souring the tone of equity research that might have focused on a top-line beat versus consensus forecasts even as the group curtailed select lines of business.

“While we sympathise with  AXA's view that the quantum is immaterial but unquantifiable, it’s our view that this known unknown factor at  AXA XL compares poorly to the increased clarity being given by peers globally,” analysts at Jeffries said in research to investors.

In its Q1 trading statement,  AXA offered no details on Q1 reserves, early loss identification or exposure sizes and limits, but only called the overall event “akin to a mid-sized nat cat event.”

Analysts at  Deutsche Bank were as unimpressed as their Jeffries’ colleagues, saying management comment amounted to “very limited disclosure.”

In the event, investors were left to draw very second-hand conclusions from management guidance that the reinsurance unit  AXA XL, the Ukraine-affected unit in the group, “will contribute” to earnings growth for the group as a whole.

AXA was following a lead set down a full month earlier by  Swiss Re which had first made the comparison between the likely industry loss on the war in Ukraine and a mid-sized nat cat event.

But when the Swiss talked Q1 earnings, the same day as  AXA, they added bits of granularity to the view. What had initially been understood as a $10 to $20 billion industry event was shifted a bit towards the lower end.

And  Swiss Re admitted to the number it had written to its Q1 books: a hefty $283 million in reserves from the war, a sum which “should cover a significant portion of our total ultimate loss from the war” on its full range of exposures across credit & surety, marine, political risk and political violence, CFO John Dacey told the Q1 investor call.

To sweeten the reception,  Swiss Re even hinted that its own portion of the industry loss could run below its standard 10% market share having found “some places where we thought we might have more exposures, and we don't.”

To little benefit. Dacey spent the bulk of the call defending the breadth of his initial $10 - 20 billion range, the imprecision of the downward shift and the lack of specific exposure limit disclosures in lines.

The darling of the Q2 reporting season proved to be the one firm offering a total loss estimate range and booking its best mid-point guess for ultimate loss, even if the forecast did span a 100% range.

Upstart property, casualty and specialty reinsurer  Conduit Re claimed to have reviewed every line of business for a total loss estimate.  Conduit, speaking six days after the more guarded or coy forecasts from  AXA and  Swiss Re, put net ultimate losses in a $15 to 30 million range and penned the initial guess Q1 at $24.6 million. “Importantly, this estimate encapsulates all exposed classes whereas peer estimates reported so far do not,” analysts at Panmure said in apparent incredulity.

“While no peers have been able to estimate the cost of war, or even provide a range,  Conduit have provided both,” analysts at Jeffries cooed, citing a stark contrast to “heavily caveated estimates” from larger rivals.  Conduit went the extra prudent mile, assuming that all exposures remained active, with no discount for hopes that primary insurers managed to cancel coverages ahead of losses.

For analysts at the Berenberg brokerage, that message proved entirely “reassuring” even as the loss estimates came in up to three times the initial Berenberg range of $10 to 15 million. Berenberg was simply happy to walk away knowing the forecast had covered all lines and still looked “very manageable.”

Hannover Re may have set the original tone for estimate-hedgers, but spoke early enough to escape the ire others would soon garner. Publishing and speaking first among the big four reinsurers and a day ahead of both  AXA and  Swiss Re,  Hannover Re offered a €130 million first quarter charge, but said it had chosen to overlook political risk and aviation lines where uncertainties loomed large.

Analysts at  Deutsche Bank spoke still rather breezily to “clear scope for Russia/Ukraine loss guidance to push higher” at  Hannover Re, but at that early stage were happy to simply write the next €150 million into their forecasts without further ado.

Did you get value from this story? Sign up to our free daily newsletters and get stories like this sent straight to your inbox.