How the war in Ukraine benefits Russian insurers and drives up insurance premiums everywhere

A EU/UK Package prohibit their insurers provide cover to ships carrying Russian oil cause tensions with Washington. America argues that Europe’s dominance of global insurance will make it very difficult for Russia to export oil if this continues, which could drive oil prices much higher than they are already.

Yet that may not happen, because Russia is make moves overcome the problem itself. The national reinsurance company, RNRC, is would have intervened replace Western insurance companies by insuring fleets and their cargoes. Russia will also now provide liability and environmental damage insurance in place of the Protection and Indemnity (P&I) clubs. If these changes are viable in the long term, it will mean that some of the business that was primarily aimed at European and UK insurance companies will now be kept in Russia.

This is just one of the many ways Western insurance is affected by the war in Ukraine. Insurers are already facing heavy losses Sanctions passed in March prohibiting the provision of various types of coverage to Russia-related activities. This has significant implications at all levels for business and society. So what happens and where does it go from here?

Insurance and geopolitics

The insurance sector dwarfs the GDP of every country in the world except China and the United States. We thought it was worth more than 5 trillion US dollars (£4 trillion) in premiums paid in 2021 and is expected to increase by 10% in 2022.

We’re all used to thinking that insurance companies protect people and businesses from risk, but behind that lies another set of specialist companies called reinsurers. These players insure the risks of insurance companies against, for example, losses resulting from claims, i.e. they offer insurance taken out on insurance. In some cases, complex insurance and reinsurance networks exist to ensure that the risk is properly protected.

Main insurers and reinsurers by turnover

2021 data.
Gallagher Re Reinsurance Market Report for the year 2021; Reinsurance News

Before the invasion of Ukraine in February, there were instances where sanctions against Russia involved the insurance industry. When the United States pressured Germany to abandon its NordStream 2 gas pipeline project, insurance and reinsurance companies were among those who got out until the Biden administration relaxed its approach.

This time around, it’s a whole different level. Complaints have been made on policies related to aviation, maritime transport, trade credit, cyber and political risk. This represents only a relatively modest exposure for the entire industry, but the potential long-term effects are another matter. Since the imposition of Western sanctions in March, major players such as Lloyd’s of London, Swiss Re and SCOR and brokers such as Marsh, Aon and Willis Towers Watson have stopped take new business from Russia. With a considerable amount of assurance previously provided to Russian sectors such as aviation and space in London and New York, for example, this is a major change.

We are now in a situation where the planes of the world no longer fly through Russia. This raises the prospect of years, if not decades, of claims by owners of up to 600 planes seizedmany of which are rented out.

Count the cost

It is not easy to estimate the overall blow to the Western insurance industry from the deterioration of relations with Russia. This is partly because much depends on the worsening of the current crisis and the possibility of finding a political or military solution.

In early April, a S&P Global report predicted losses to specialized categories such as aviation, maritime and political risk would be in the range of US$16-35 billion. Only Lloyd’s of London was reported in March as facing payments in aviation and space between US$1 billion and US$4 billioni.e. 1% of its premiums.

HQ sign for Lloyd's of London
The Lloyd’s insurance market is among those hard hit.
Simon Vayro

industry could be affected by payments on claims for one or even two decades, acting as a brake balance sheets of insurers waiting. Those who have not yet downloaded their Russian business also runs the risk of their policies being seized by the Russian government.

Meanwhile, premiums are rising more and more as insurers seek to make up for their losses, especially in all categories except life insurance. It is said that worldwide aviation insurance premiums have doubled as insurers seek to protect their profit margins. Premiums on tankers and other important goods in the Black Sea, such as agricultural and grain products, also increased significantly. All of this will translate into higher prices for consumers and businesses, even outside of all the other current inflationary pressures.

Another affected area is cyber insurance, which protects against the risk of cyberattacks. With Russia being linked to numerous cyberattacks, both in connection with Ukraine and other countries, the demand for cyberinsurance has increased, but it is becoming increasingly difficult to obtain and therefore prices are soaring.

Russia is a potential winner in much of this. Assuming the sanctions continue, it is likely that Western insurers will increasingly be replaced by Russian insurers (and those from countries it deems friendly). For instance, The RNRC is already replacing Western reinsurers for other cargoes than oil. Russia could also follow the model in iran where various new state guaranteed reinsurance pools, companies, P&I clubs and co-insurance (several companies providing cover) have been created in response to the sanctions.

Russian sanctions and the forced exodus of Western companies from the Russian market give Russia the chance to have inherited in-house expertise and knowledge of the insurance and reinsurance industry that it does not have. paid. While Western insurance companies have to absorb the hit from the sanctions, it is not entirely clear that their Russian counterparts will suffer in the same way.

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