Bruce Carnegie-Brown, Chairman of Lloyd’s of London, has said that the insurance and reinsurance marketplace is expected to have “a number” for its exposure to the Russia-Ukraine conflict “by the end of May.”
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.”
Less 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.”
The most prominent example of second order risks are the hundreds of Western-leased planes that remain stranded in Russia, and which have in some cases been appropriated by the state under newly-introduced laws.
But even here, Carnegie-Brown warns that losses remain “relatively complicated” as different risks are covered by different insurers, and war exclusions still remain unclear in some instances.
“There’s a cancellation event when a war occurs and other risks kick in,” the Lloyd’s Chairman told Bloomber. “It’s also multifaceted. So there are specifically issues around political violence, of which this is clearly an example. There are credit flows, in terms of the insurance of credit payments across borders.”
“So we’re still evaluating all of that, and it’s quite hard to put a number on that. I think we will have a number for Lloyds exposures by the end of May. And most companies will have to be thinking about what provisions they’re putting up for their half year results.”
Compounding these issues is the sanctions regime, which is requiring insurers to immediately cancel any coverage that is deemed to be supporting Russia.
But Carnegie-Brown says this is likely to remain a point of contention, as the beneficiaries of these insurance policies in the case of issues like aviation are arguably the non-Russian owners of the planes that happen to be leased to Aeroflot and other airlines.
“So those kinds of issues need to be worked through,” he noted. “There is a right of termination in most insurance policies related to war events. Unless you bought a war cover, you may not recover for that kind of risk.”
Finally, asked whether there were any parallels to the sudden lack of coverage post 9/11, the Lloyd’s Chairman acknowledged there were “some,” but maintained there was a fundamental difference due to the coordination of the West’s response to Russia’s invasion.
“What’s I think a bit different here is sanctions policy,” he explained. “There were no sanctions post 911. Certainly not in the immediate aftermath of 911. And of course, it’s important that different jurisdictions manage these in a coordinated way, because otherwise, gaps in risk and coverage occur.”
Also during his interview with Bloomberg, Carnegie-Brown said that 2026 would be too soon for the marketplace to leave its home on 1 Lime Street in London, as it continues to negotiate to extend its lease beyond 2030.