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Munich Re could face Russian jet loss via war risk policies: Jefferies

15th July 2022 - Author: Matt Sheehan

Analysts at investment bank Jefferies have contended that Munich Re faces a “non-trivial” exposure to the ongoing aviation crisis concerning jets stranded in Russia, possibly via its “war risk” policies.

Munich Re has a 49.96% share of Global Aerospace, which is on the all-risks cover for aircraft lessing giant Aercap, which recently levelled a lawsuit against AIG and other insurers for refusing to pay out on a $3.5 billion claim related to its lost planes.

However, management at the German reinsurer support the view that the all-risk policies have clear exclusions for war, which was indisputably a factor in their seizure.

Jefferies therefore believes that, as most buyers of all-risk policies (including Aercap) also have a “war risk” policy, that this would seem to be the natural policy to claim against in the case of the stranded jets.

For its part, leasing firm Aercap argues that its insurers were in breach of policy by refusing to honour its claim, and is now seeking to recoup its losses in court.

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The lessor posted a $2.7 billion net loss in the first three months of 2022 after 113 of its jets and 11 engines remained stuck in Russia, City A.M. reports.

Its expected that the outcome of the lawsuit brought forward by Aercap will ultimately come down to whether the court decides that losses fall under the company’s all-risk policy, its war policy, or are not covered be either, as its insurers currently seem to be arguing.

Another lessor company, Air Lease Corporation, revealed back in April that it expected to record a total write-off of its interests in its owned and managed fleet that remain in Russia, totalling approximately $802.4 million.

And more recently, SMBC Aviation Capital, has said it is “unlikely” that it will be able to recover 34 owned aircraft stranded in Russia following the country’s ongoing invasion of Ukraine and subsequent sanctions, leading the company to recognise a $1.6 billion write-off.

Estimates for ultimate insurance market losses from the aviation crisis range from between $10 billion to $35 billion, with some commentators warning that industry losses could top levels seen after 9/11, with price increases of 30-40% expected to follow.

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