Final ‘highly uncertain’ re/insurance claims from Russia’s new aircraft law

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A new report from Moody’s said that at this stage it is unclear whether insurers will have to pay all current lessor claims, in relation to Russia’s new aircraft law effectively preventing foreign lessors from repossessing of their planes.

Under usual circumstances, lessors are insured against this risk, but they are now looking to insurers to recover these losses.

But insurers may not have to pay all of these claims, as the amount and timing of impairment charges to be taken by lessors is subject to a number of variables, as well as negotiations with airlines, which will ultimately by affecting assumptions about future value.

However, as Moody’s explained in the report, even though many insurers withdrew their coverage before the new law took effect, they may not have provided sufficient notice to waive their responsibilities.

The definition of the event triggering the loss which will affect the result for the insurers will also be the subject of legal proceedings.

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Moody’s said, “We believe lessors are prepared to take legal action against insurers if necessary.”

The report also says the exact size of the ultimate insured loss remains uncertain and will likely be known after lengthy legal proceedings. However, as a result of new Russian legislation, Moody’s estimates that global re/insurers face potential claims of $9 billion to $11 billion.

Fitch Ratings analysts recently warned that insurers could face claims of up to $10 billion from grounded planes in Russia, 30-40% of which could be passed on to reinsurers.

Moody’s said it does not expect Russia’s aircraft law to affect the capital of diversified global players, but the impact can vary widely from company to company and could be more severe for companies. specialized actors.

Moody’s agrees that reinsurers will share some of this loss, knowing that they typically cede 20-30% of their marine, air and transport premiums to the reinsurance industry, meaning that reinsurers are likely to bear a large portion of the potential loss. Given the complexity of this event, disputes between insurers and reinsurers are likely to occur, which will further delay the settlement of claims.

Further, the report states that this ongoing event will only affect a sub-segment of the aviation insurance market – a global market dominated by large, well-diversified insurers and comprising specialist players including some Lloyd’s syndicates and Lancashire Holdings. ltd.

“If claims do materialize, they will therefore not be allocated among aviation insurers based on their market share,” the report said. If this materialized, the expected aviation loss would be the largest direct loss to date resulting from Russia’s invasion of Ukraine.

Losses are also expected to increase in other lines of insurance, a military conflict could lead to increased claims in other lines of insurance business, including political risk, cyber risk, trade credit and goods.

The exposure of credit insurers to Russia is relatively limited, representing no more than 1-2% of their total exposures and insurers can also cancel some of these exposures. Credit insurers can also cover political risk, and they typically share risk with reinsurers through proportional and non-proportional treaties.

Moody’s said: “An additional risk for commercial credit insurers is the spillover of the impact of the military conflict to the global economy. We recently downgraded our forecast for economic growth in the G-20 countries, although we expect growth to remain positive.

The ongoing conflict also increases inflation and investment risks, including market volatility, for insurers.

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