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.
Announcing a swing back to an annual profit as it recovers from the pandemic, the world’s biggest insurance market 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.
He said the next biggest losses were expected from claims related to ships trapped in the Black Sea, and to disrupted exports of cereals and agricultural products from Ukraine and Russia. Some insurance policies also cover state-sponsored cyberterrorism. 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,” he told the Guardian.
“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.”
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. This prevents UK-based insurance or reinsurance firms from offering contracts linked to Russia.
“We are working with the government to make these sanctions as effective as possible across all classes of business,” said Carnegie-Brown. “We are cancelling [policies] across all lines of business in support of the government sanctions. We are trying to move as fast as possible.”
He said it was easy to stop writing new insurance policies for Russian firms and to cancel specific policies, but said it took longer to cancel policies “where Russian risk is embedded in a big global policy”.
However, shunned by European and North American insurers, there are some signs that Russian companies are turning to Russian insurers, as well as Chinese and Indian firms to obtain cover. “That’s unhelpful to make the sanctions effective,” said Carnegie-Brown.
Business underwritten by the Lloyd’s market in Ukraine, Russia and Belarus represents less than 1% of the global total, and it stressed: “Direct and indirect claims are expected to fall within manageable tolerances and will not create solvency challenges.”
Lloyd’s reported a profit before tax of £2.3bn for 2021, compared with a loss of £900m in 2020, when it was hit by pandemic-related claims, such as for business interruption and event cancellations. Higher premiums and reduced Covid-19 losses outweighed costly claims for natural catastrophes including ice storms in Texas and Hurricane Ida.
The group paid £19.9bn of gross claims last year. Overall, it has paid out £2.9bn to customers affected by the pandemic, the vast majority (86%) of claims it has received.