Aviation war insurers brace for fallout after Russia ruling

The saga of the aircraft seized by Russia in 2022 has entered a new phase, with the English High Court ruling in June that losses suffered by lessors fall under their hull war insurance policies.

That judgment, covering 147 aircraft, 16 individual engines and one other item of equipment, for a combined estimated insured value of $4.5bn, represents one of the largest losses in aviation war history, according to a recent analysis of the case published by WTW.

The ruling sided with the lessors, which have been unable to recover more than 400 aircraft stranded in Russia since sanctions were imposed on Russia. Hull war losses are capped by aggregate limits, but the blow is likely to be significant. The result has been greeted with alarm by aviation war specialists.

“I think it’s fair to say we were hugely disappointed with the judgment that came out,” said Bruce Carman, CEO at Hive Underwriters, a London market managing general agent in the aviation war business.

“We are appealing, because there are issues in that judgment that genuinely need questioning,” Carman said, speaking on The Political Risk Podcast.

The judgment confirmed that confiscation by Russian legislation triggered coverage. This established 10 March 2022 as the definitive date of loss, when Russia banned the export of aviation equipment.

This determination is critical, WTW’s analysis argued, not only for the policies themselves, but also for the reinsurance programmes that back them. Reinsurers now face the prospect of being drawn more deeply into the claims.

“If the appeal isn’t successful, the insurers are the ones who will reserve. Each will make their own judgment about how much to set aside, and their reinsurance protections will also differ,” Carman explained, adding that Hive itself has no part in that process.

For market observers, the scale of the loss is extraordinary compared to premiums historically collected. WTW noted that aviation war premiums have risen five-fold since 2022, yet this remains small relative to the billions now at stake.

Some insurers may struggle to balance Russian exposures with income, while some new entrants, unburdened by legacy losses, have also stepped into the sector. Carman emphasised the need for sharper wordings.

“What this case has highlighted is that there are all shades of grey in the policies that were written, issued, and purchased. The lesson for the market is to ensure policies become more watertight and less grey in the future,” he said.

Insurers have already tightened terms, as well as reducing exposures to other geopolitical hotspots.

“We’ve reduced our exposure to China and Taiwan by about 90% since, and sub-limits for confiscation have now been written into policies. Those changes make the market much more resilient if another shock were to occur,” said Carman.

He noted: “One of our carriers said to me: ‘This wasn’t a black swan, it was the black swan.’ The aircraft were either Irish or Bermudan registered, as opposed to Russian registered… there are a number of factors that made it the worst-case scenario possible.”

WTW also warned that reinsurance collections could prove complicated where excess-of-loss treaties were written on marine war or political risk bases. Definitions may not align, the broker suggested, raising the risk of unpaid recoveries.

For Carman, the episode has shown the market’s reactive nature.

“It isn’t a spot market, where we’re trading war risks on the basis of what’s happening today. The capacity in the reinsurance arena hasn’t yet gone, and until such time as it does go, you’re not going to see rates change.”

Further litigation looms, including another UK case testing whether lessors can tap Russian operators’ policies. For now, many insurers and reinsurers remain in limbo. Carman previously estimated the insured losses at $5-6bn. “There are still big questions over the ultimate number.”

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