Insurers are preparing for further losses as Russia continues to hold on to leased planes
By Editor Katie Scott
Since February 2022, the world has watched on in shock as Russia went to war with Ukraine.
The global media has been keeping its finger on the pulse of the myriad situations and developments arising from the conflict – this has included a number of global insurance firms looking to be rid of Russian operations, for example, brokers Marsh and Aon.
As insurers’ half-year financial results have been released over the last month or so, however, industry attention has turned to evaluate how exposed insurers operating in the UK are to conflict-driven claims.
Hiscox’s London market business, for example, recorded losses of $34m (£27.9m) for risks associated with the war – including aviation – within its half-year financial results, published on 3 August 2022.
The ultimate group loss from these risks equated to $48m (£39.3m), net of reinsurance.
Beazley, meanwhile, estimated incurred losses associated with the conflict of £34.7m, net of reinsurance, in H1 2022.
Its half-year financial update, published on 22 July 2022, noted that the insurer’s exposures primarily sat across its political violence, trade credit, aviation and marine books.
The slight silver lining, if it can be called that, is that Beazley has not factored in potential claims arising from stranded aircraft in Russia because these losses have not yet been incurred.
The insurer added that the war has also led to an unusual trading environment, which has contributed to an investment loss of $160.6m (£133.6m) for the first six months of the year.
Axa is also preparing for potential claims – its 2022 half-year financial report, published on 3 August 2022, revealed that the impact of the conflict has already set Axa back around €300m (£252m).
Alban de Mailly Nesle, group chief financial officer at Axa, explained that although the insurer has “received extremely few claims” linked to the war so far, the business is still monitoring and reviewing its “reserves in anticipation of potential claims”.
For example, the majority of this €300m reserve is for aviation claims linked “to the planes that have been grounded by the Russian government at the beginning of the war with Ukraine”, de Mailly Nesle continued.
Axa faces similar exposures through its marine book, as well as its crisis management line that provides “specific policies which we sell to a limited number of customers to cover the impact of war, terrorism or riots”.
De Mailly Nesle confessed that some crisis management “policies were triggered because of the war in Ukraine”.
Just as bottom lines are bouncing back from the Covid-19 pandemic, these war-related risks must be the last thing insurers wanted on their plates, especially as the climate crisis also continues to heap more frequent severe weather events onto claims costs.
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Meanwhile, insurers such as Allianz and Aviva have confirmed that the conflict has had little or no impact on their financials at all.
Adam Winslow, chief executive of UK and Ireland general insurance at Aviva, described the insurer’s exposure to risks linked to the war as “really none at all”.
He told me: “If you think about where you’ve seen [the] most impact, it’s in specialty lines and classes - we don’t cover political risks, we don’t cover aviation, we don’t cover terrorism.
“If you think about the Lloyd’s market or specialty commercial lines insurers where you’ve seen exposure, we have none of that.”
Over at Allianz, it’s a slightly more mixed perspective when you compare its UK and global operations.
Colm Holmes, chief executive of Allianz Holdings, told me that Allianz does not “have much exposure to [the] Russia-Ukraine [conflict] as a group”.
In the UK specifically, Allianz Holdings’ “exposure was minimal” and there has been “little or no impact” to the business’ financials, he said.
For the broader group though, Allianz’s leadership have been taking steps to mitigate possible exposure to conflict-caused ramifications.
For example, in March 2022, Gregor Hirt, global chief investment officer, multi-asset at Allianz Global Investors, explained that Allianz “started to reduce risk in our multi-asset fundamental investment committee before the crisis, based on our expectation of stronger action by central banks”.
The insurer’s investment arm therefore increased its investment in gold and longer-term government bonds.
“We prefer to remain defensive for now,” Hirt said at the time.
Holmes added: “Where we did have exposures, the group has taken action - we’re not investing any monies in Russia.”
Bloomberg also reported in June 2022 that Allianz SE would be taking a €400m (£336m) profit hit from the sale of the majority of its Russian operations to Interholding LLC. The insurer will own 49.9% of the combined company following the transaction.
No end in sight
The conflict between Russia and Ukraine shows no immediate signs of stopping, at the time of writing. Losses in niche specialty lines have the potential to blossom further as commentators scratch their heads over the potential time frame of the war.
The biggest question mark, however, remains around aviation risks thanks to the leased planes that are unable to leave Russia.
This situation arose after the Russian Federation’s president – Vladimir Putin – signed a law on 14 March 2022 that allowed Russian airlines to retain and operate over 500 leased airliner jets that had become stranded in Russia following the commencement of hostilities in February this year.
Putin’s action was in response to sanctions on Russian economic assets being imposed by the Western world in reaction to Russia’s invasion of Ukraine.
Whether these claims have the potential to hit insurers’ full-year financial results, the crystal ball has yet to determine.