Exposure to eastern Europe is likely to be ‘modest’ but classes such as energy could take a beating

Lloyd’s of London could be facing a “sizeable” loss from its $2bn share of the political risk insurance market during the ongoing Russian and Ukraine war. 

Following a TV address from president of Russia Vladimir Putin on 24 February, Russia began invading Ukraine targeting airports and military headquarters, as well as war planes bombing major cities in a bid to overthrow Ulkraine’s democratically elected government. 

According to an analyst note published on 25 February from Charles Hall, head of research and Clyde Lewis, deputy head of research at Peel Hunt, the main exposure among UK insurers lies in the Lloyd’s market and despite the $2bn share being a “guestimate” even a single-digit share would be a “sizeable loss for the market”.

For example, the underwriting class Political Risk Insurance (PRI) could face exposure which includes claims relating to expropriation, war, embargoes, and border closures due government intervention.

However, Lloyd’s does have a low exposure to Europe (15%) with most of its premiums stemming from countries with high insured values and high insurance uptake rates such as western Europe.

“The exposure to eastern Europe is likely to be modest. As such it will be individual contracts written in the region by insurance syndicates that are likely to determine any specific exposure,” the analyst note said.

Low production capacity

One of Lloyd’s “relatively large” underwriting classes is the energy insurance market which totalled 4% of premiums in 2020. This includes insurers underwriting US oil infrastructure, high-value offshore rigs in the Gulf of Mexico and off the coast of Africa.

“The energy market is likely to be disrupted should this conflict drag on for a number of months. The oil price had already been rising ahead of this conflict,” the analyst note stated.

Peel Hunt pointed out that its oil and as team has reported that production capacity is “low due to underinvestment in infrastructure for a number of years”.

This is the case for the Gulf of Mexico where production capacity remains at an all time low.

But there are signs of rising capital expenditure in the oil industry in 2022, Peel Hunt awaits indications that this will result in high capacity in the Gulf of Mexico which could aid Lloyd’s insurers with exposure in the energy market.

In addition to this, the classes aviation war, trade credit and marine cargo or war could also face exposures.

The analyst note continued: “Given that markets have had some warning running into conflict, insurers have had time to go through their exposures and either put them on notice or trigger any war exclusions. In credit insurance, contracts can be pulled overnight.

“As such, insurers would have been able to take steps to limit any exposures they might have on their books.”


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