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Lloyd’s leads re/insurers tightening Taiwan cover as conflict risks increase

10th August 2023 - Author: Kane Wells

According to a recent Reuters report, Lloyd’s of London underwriters are leading insurers in increasing rates and cutting coverage for risks involving Taiwan as “concerns grow over possible military action by China.”

Lloyd's“Availability of cover for Taiwan has got tighter,” Crispin Hodges, head of trade and political risk with insurer Canopius, reportedly told Reuters.

Hodges added that Lloyd’s insurers have become more focused on how much risk they are exposed to from ships in ports in a conflict zone.

Russia’s invasion of Ukraine last year is cited to be a driver of this tightening, which, as Reuters said, “took market players by surprise” leaving jets stuck in Russia and ships marooned in Ukraine.

Insurers have since generally excluded Russia and Ukraine from policies or increased rates.

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Reuters’ report suggests that similar action by insurers over Taiwan, which China claims as its territory, would make it “more difficult and expensive to do business there.”

Insurers that cover war risks for aircraft are raising rates and reducing the amount of cover for issues such as confiscation, one Lloyd’s market source reportedly said, who declined to be named due to business confidentiality.

Reuters states that Taiwan has repeatedly complained of Chinese military activity near it over the past three years, as Beijing “steps up pressure to try to force the island to accept its sovereignty.”

“From a political risk standpoint, it’s a constant challenge and there is an underlying murmur of concern that’s there on a daily basis,” Canopius’ Hodges added.

As per Reuters, the Lloyd’s of London insurance market asked members in January to identify potential exposure to so-called “realistic disaster scenarios” related to conflict in Taiwan in insurance classes including marine, aviation and political risk. Since receiving initial responses from members in April, Lloyd’s has asked for a further review, the first Lloyd’s market source and two others said, all declining to be named.

“It is not unusual for Lloyd’s to ask for more information as initial responses can trigger further queries,” a separate industry source told Reuters anonymously, citing business confidentiality.

After Lloyd’s collates the market’s overall exposure to a realistic disaster scenario in both insurance and reinsurance, it can ask individual syndicates to pare their business or put more capital behind it, this industry source added.

“Lloyd’s regularly asks market participants to model for plausible, but hypothetical scenarios to assess their potential impact on our market,” a Lloyd’s spokesperson said.

“This is an important part of protecting our customers against the kind of external shocks seen in recent years and ensuring our market is ready to respond in a range of scenarios.”

Reuters’ report also notes that major Lloyd’s insurer Hiscox has run its own scenario simulations on Taiwan, before the Lloyd’s exercise, and identified risks in the region for marine and energy insurance.

Hiscox CEO Aki Hussain told Reuters, “We’ve been tightening up the wording to ensure that the policies reflect the underlying risk that we want to insure and there aren’t any unintended risks being taken on.”

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