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March 23, 2022

Insurers Face Losses Due To Grounded Aircraft in Russia

The already hard aviation insurance market could become even harder if Russia confiscates the more than 500 airplanes in the country that are financed or owned by non-Russian lessors and have been stranded by Western sanctions against Russia. Insurers and reinsurers are thus faced with potential claims as high as $10 billion, which for aircraft owners/operators would result in increased premiums, additional exclusion clauses, and more dropped policies, according to Fitch Ratings.

These lessors have hull and liability insurance, as well as specific aviation war coverage, and will call on their insurance to be indemnified against expropriation of their airplanes. Most aviation policies are underwritten through the Lloyd’s of London market, and Fitch Ratings estimates that 30 to 40 percent of primary insurers’ exposure is ceded to reinsurers.

Fitch Ratings said it is hard to quantify ultimate claims with a high degree of certainty as outcomes are likely to be subject to legal disputes. Industry experts estimate the total insured residual value of the grounded aircraft at $13 billion, but aggregate loss limits written into policies means potential hull insurance claims should be $5 billion to $6 billion but could be as high as $10 billion worst-case, according to Fitch Ratings. The latter figure “would be by far the largest annual claims in the history of aviation insurance,” it concluded.