2022 has been another interesting loss year. The insurance industry is always braced for significant natural catastrophe events like Hurricane Ian, but this year political events have dominated the headlines, highlighting how unpredictable the current environment is and how challenging it is for our clients to lend, invest and trade overseas.
Perhaps the biggest shock of 2022 was the Russia-Ukraine conflict. Political violence (PV) losses in Ukraine have thus far come in considerably below market expectation, though the conflict is of course ongoing, and the estimates could change rapidly.
In our own portfolio multiple clients have suffered losses, particularly acute in the Southern parts of the country, with several policies facing full limit losses caused by both physical damage and business interruption.
The complex process of adjusting these claims without being able to access dangerous sites is ongoing. As such the WTW-paid PV claim numbers of $0.53 million for 2022 are very modest in comparison to the losses of 2021 ($4.4 million). As Ukraine claims start to finalise, 2023 will inevitably show a sharp increase in the paid numbers.
Whilst Ukraine has been at the forefront of everyone’s minds, WTW is also dealing with increased political violence notifications across the globe, with losses being reported in Africa, Latin America, the Caribbean and Asia as economic woes and political tensions are driving increased protest and social unrest.
Our 2022 credit and political risk insurance (CPRI) loss experience of $61.9 million is also below our rolling 10-year average, representing a particularly marked decrease in loss activity over 2021 when WTW collected $118.6 million. This is a surprise given everything that is going on around the world. In our opinion this reduction has been the result of a more stable credit portfolio with higher rated and structured credits performing well. That said, credit risks only account for 60% of exposures in our portfolio and sovereign losses have played a major part in recent activity.
Ongoing Zambian contract frustration (CF) settlements accounted for 50% of claims paid during the year. Sovereign-related non-payment losses accounted for 65% of loss activity, generally including some related to the far-reaching sanctions impact of the Russia-Ukraine conflict which has profoundly hit economies like that of Belarus. We are also working through political risk cases in Russia that may lead to loss, particularly given the ongoing currency restrictions.
Nearly $22 million of the CPRI paid claims have been credit related (CR), with Asia accounting for 55% of those and the Americas accounting for the remainder. No industry trends have been particularly apparent.
Trade credit losses are increasing after the relatively benign COVID-19 years with major insurers reporting increases in insolvency rates, and some territories returning to pre-pandemic levels after the end of government support packages1. High inflation rates, high energy costs and rising interest rates are going to keep the economic pressure on companies globally and loss activity is set to increase.
Turning to the year ahead, 2023 will herald several significant elections globally, including presidential elections in Turkey and Nigeria, that could increase turmoil in developing parts of the world. Nigeria is holding elections that could be some of the highest stakes in years as president, vice-president and parliamentary seats are up for grabs, against a backdrop of political violence, complex security challenges and economic weakness. The outcome of these elections will shape these key countries’ outlooks for the foreseeable future.
We expect that Ghana’s recent suspension of foreign debt payments will lead to claims manifesting early in 2023. Sub-Saharan Africa is already the most affected region in terms of loss activity at WTW in the last five years representing 54% of all CPRI claims over the period. The IMF2 and World Bank have cited that about 60% of lower income countries have debts that are unsustainable or in danger of becoming so, which will inevitably lead to losses materialising in more countries.
Losses from Ukraine will mount, and political violence claims generally in 2023 could well be a WTW high.
2023 is therefore set to be a busy and bumpy loss year with ongoing unpredictability keeping us all guessing what will happen next.
|Global Financial Solutions Claims Review 2022
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