Russia Sanctions

author by Graham Sheppard time Apr 19, 2022

Lloyd’s of London has said it is working with the UK government to implement sanctions imposed over the war in Ukraine as fast as possible, including cancelling Russian firms’ insurance cover, The Guardian newspaper said. Announcing a return to annual profit as it recovers from the pandemic, Lloyd’s warned that the war will present a “major claim” for the insurance market this year, but said it was “manageable.”

It said aviation, marine, trade credit and political risk were the lines of business most affected. Bruce Carnegie-Brown, the Lloyd’s chairman, said unrecoverable planes were likely to cause the biggest insurance losses. Moscow has passed laws to impound $10bn (£7.6bn) of jets leased to Aeroflot and other Russian airlines by western organisations.

Carnegie-Brown said it would take three to four weeks to work out the claims. “It’s reasonably complex because there are lots of different lines of insurance that operate here and in fact some lines of insurance get kicked out by war, there are war exclusions, and some get kicked in because there are war covers. On top of that, you’ve got to overlay the sanctions regime so governments themselves are causing the cancellation of insurance as part of the sanctions package against the Russian state,” he told the Guardian.

War Risk Premiums Surge

Since the invasion started a month ago, war risk premiums have hit $300,000 for some tankers operating in the Black Sea, the journal Lloyd’s List reported. As part of sanctions on Moscow, Russia’s aerospace and aviation sectors were blocked from accessing insurance through the UK insurance market in early March. They are areas in which London, and Lloyd’s in particular, are considered global leaders, along with maritime insurance.

Global insurance losses from the Russia-Ukraine war could range from $16 billion to $35 billion, with reinsurers expected to assume 50% of those claims, according to a report published by S&P Global Ratings.

“We share the view of major market players that the ongoing conflict will represent a major claim to the market in 2022. We believe that specialty lines will be the most exposed, with aviation hardest hit,” said S&P in its report titled “Russia-Ukraine Conflict Adds to a Bumpy Start to 2022 for Global Reinsurers.”

Whatever the ultimate price tag is for the Russia-Ukraine war, global reinsurers are likely to assume about one-half of the potential specialty insurance losses, resulting in an earnings event for most reinsurers and a capital event for a few outliers, said S&P.

The Cyber Threat

Insurers face potential multi-billion dollar claims for cyber-attacks related to Russia's invasion of Ukraine, despite policy wording designed to get them off the hook for war, industry sources say. The U.S. government said it has seen "preparatory" Russian hacking activity aimed at numerous U.S. companies, though it said it had "no certainty" such an attack would occur, says the US magazine Insurance Journal.

European and U.S. insurers, already facing mounting losses in the past year, have been driving up premiums due to the increased coverage cost and prevalence of so-called ransomware attacks. If Russia carries out a large cyber-attack which spills over into several countries, it could lead to claims totalling $20 billion or more, like insurance claims from a large U.S. hurricane, industry sources revealed.

Cyber insurance policies do not cover war, or attacks by so-called "state-sponsored actors".

It is often hard, however, to identify the perpetrator of a cyber-attack. Cyber insurers have become more aware of ambiguities in their insurance in recent years, but some are slower to adapt than others. A particular grey area is over cyber terror attacks, which are generally covered by insurance.

In our next blog, we will address the silent cyber issue.

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