Stranded Russian planes could cost re/insurers $10bn: Fitch

Re/insurers could face claims as high as $10bn due to the grounding of planes in Russia, according to a worst-case scenario described by Fitch Ratings.

More than 500 planes that are financed or owned by non-Russian lessors are stranded in Russia owing to sanctions imposed by numerous western countries in response to Russia’s invasion of Ukraine.

The lessors have hull and liability insurance, as well as specific aviation war cover, and will call on their insurance to be indemnified against expropriation of their planes. Most aviation policies are underwritten through the Lloyd’s of London market, and Fitch estimates that 30% to 40% of primary insurers’ exposure is ceded to reinsurers.

Industry experts estimate the total insured residual value of the grounded aircraft at $13bn, Fitch said. Hull insurance will typically have aggregate loss limits in place, which means that potential hull insurance claims should be significantly below that figure: Fitch estimates $5bn to $6bn in a realistic scenario. However, it believes total insurance claims could be as high as $10bn in a worst-case scenario, which would be by far the largest annual claims in the history of aviation insurance.

“Even in such a scenario, we believe most insurers and reinsurers would suffer only a hit to earnings, rather than capital depletion, and we would not expect material ratings implications. There might be rare exceptions among specialised Lloyd’s carriers, where aviation losses in combination with other large claims could lead to modest capital depletion,” Fitch said.

Aviation insurance exposure is more concentrated among insurers than business-interruption and event-cancellation insurance, which account for most pandemic-related claims, and is also more concentrated than property catastrophe insurance.