Lloyd’s of London insurers face losses of up to $10 billion if Vladimir Putin follows through on his threat to seize foreign-owned planes.
Russia on Thursday released a bill allowing it to hold around 500 foreign aircraft hostage.
Western sanctions against the Kremlin have given leasing companies, many of which are based in Ireland, until March 28 to back out of deals with Russian carriers.
But according to proposals drafted by the Russian Transport Ministry, its airlines will make rental payments in rubles for the rest of the year.
If the leasing companies terminate their agreements, a new commission set up by the Kremlin will decide whether the plane can be returned or remain in Russia.
The insurance industry has been preparing for planes stuck in Russia to be confiscated by the state since Mr Putin’s forces invaded Ukraine last month.
Airlines and leasing companies have insurance policies to protect against damage to or loss of the aircraft.
Lloyd’s dominates the global aviation insurance market. It takes almost all of the risks associated with aviation insurance alongside reinsurance companies on the continent.
Insurance brokers expected the policies to be triggered under “Hull War and Allied Perils” clauses, which protect the policyholder against the fallout of war.
Russian airlines have 980 jets in service, according to analytics firm Cirium. Some 777 of these are leased, two-thirds of which are leased to foreign leasing specialists.
Although the total value of the threatened aircraft is $10 billion, the losses are likely to spread globally as Lloyd’s underwriters offload their risks to specialist reinsurance companies. Lloyd’s did not respond to a request for comment.
However, the losses could be significant. Hurricanes Charley, Frances and Ivan in 2004 resulted in payouts totaling approximately $25 billion, of which Lloyd’s share was $2.3 billion.
The 1988 Piper Alpha disaster, where an oil production platform in the North Sea exploded with 226 people on board, cost the City of London insurance market $1.4 billion.
Paul Jebely, asset finance specialist at law firm Withers, said: “It is now increasingly likely that there will be hundreds of millions of dollars, if not billions, of losses written off by aircraft lessors.
“Insurers, being rational economic actors, are likely to fight tooth and nail for years to resist billions of dollars in potential claims.”
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This notice was published: 2022-03-11 06:00:00