Lloyd’s has reportedly hired law firm Clyde & Co. to give advice on the current situation involving Russia’s annexation of planes following its invasion of Ukraine.
It is understood that more than 500 planes were left stranded in Russia after the country began to invade Ukraine earlier this year. A law passed by the Duma in March allows for the state to effectively nationalise the aircraft to ‘ensure the stable functioning of the national transport system’ by allowing the vehicles to be certified and registered within the country.
At the time, Berenberg said that the situation was the greatest risk to the London insurance market, given that the planes are valued at over $10bn. It was a view reflected at the same time by Bank of America.
Now, The Telegraph is reporting that Lloyd’s has hired Clyde and Co. on its position when claims are made against insurers for the lost aircraft.
According to The Telegraph, “Lloyd’s is uniquely exposed to losses in Russia by virtue of the roughly 90pc of so-called ‘Hull War and Allied Perils’ insurance cover being written by the London market, according to brokers. This type of insurance protects holders against the fallout from war.”
The paper also reports that Ireland-based aircraft-leasing company AerCap has hired law firm Clifford chance to advice on negotiations around claims totalling $3.5bn. Negotiations, writes The Telegraph, are expected to take years.
Paul Jebely, global head of asset finance at law firm Withers, told The Telegraph: “[This will] lead to a generation of insurance litigation and arbitration as various hands are forced. Resolving insurance coverage disputes requires a sound commercial approach to the parties’ positions, and that frankly is lacking at the moment, on both sides.”
The pieces are rapidly moving into place for a protracted fight between insurers and the aircraft leasing industry. In March, Irish lessors, which account for more than 60% of the world’s fleet of leased aircraft due to the country’s favourable tax regime, all ended their leasing agreements by Brussels’ Monday deadline, reports suggest. The deadline formed part of the package of economic sanctions imposed by the EU following Russia’s invasion of Ukraine.
And recent predictions by Bruce Carnegie-Brown, chairman of Lloyd’s of London, said that exposures from the situation were likely to hit the market by the end of this month.
Speaking in a recent interview with Bloomberg, Carnegie Brown explained that the impact of the conflict and its resulting sanctions are ‘relatively muted on a direct basis’.
Fewer than 1% of Lloyd’s revenues come out of either Ukraine, Belarus, or Russia itself, so the issues presented by the war ‘are mostly second order risks’ for Lloyd’s, the chairman said.
He added that there is also a distinction between ‘understanding what the asset values of those aircraft are, to what the exposures are for the insurance industry, and then of course, down to what the losses will be’.