Aviation risk managers brace for further hardening as war claims filter through

Dublin-based aviation leasing group SMBC Aviation Capital has received cash insurance settlement proceeds of $710m for its aircraft leased to Aeroflot that were stranded in Russia following its invasion of Ukraine. The firm, which is majority owned by Japan’s Sumitomo Mitsui Financial Group, said the payout comes from Aeroflot’s insurance and reinsurance policies relating to 16 aircraft and associated engines. An additional settlement has been concluded for one aircraft and associated engines managed by SMBC, it added. The leasing firm was forced to cancel the leases to abide by sanctions imposed on Russia because of the invasion. SMBC said the settlement from Russian firm Insurance Company NSK was carried out in full compliance with all applicable laws, sanctions and regulations, and has been approved by the US Department of Commerce and the US Department of the Treasury. “SMBC Aviation Capital will continue to actively pursue its litigation in the Irish courts under its own insurance policies. SMBC Aviation Capital will also continue its efforts to seek to mitigate its losses in respect of its aircraft that were previously leased to other Russian airlines,” added the firm. Sumitomo Mitsui Financial Group said that it will record $311m equity gains of affiliated companies in its third-quarter consolidated earnings. Japanese trading house Sumitomo, which holds a minority stake in SMBC Aviation through a subsidiary, said it would book $200m in after-tax profit from the insurance payment in the third quarter. Aercap, the world's largest aircraft lessor, said last month that it had agreed to settle an insurance claim over Russia’s refusal to return 17 jets leased to Aeroflot. Aviation underwriters and lawyers are busy currently as more than 40 aviation leasing firms remain in dispute with insurers over who should bear up to $10bn in costs for 400 jets stuck in Russia following the start of the war. The firms have requested that the UK’s High Court allow a reinsurance dispute to be heard in London, not Moscow. The reinsurers reportedly say that the hearings should be held in Russia because they were formally insured by Russian insurers, according to news agency Reuters. Lessors are suing insurers across several jurisdictions, including London. London's High Court is due to hear five cases next year that involve lessors, including AerCap and Dubai Aerospace Enterprise, understood to be over lessor-contingent all risk or contingent war policies. It is thought that the trial could take place on 4 June next year. In a claims briefing issued last year, insurer Allianz Global Corporate & Specialty (AGCS) predicted that this would be a lengthy and complex dispute. “Notifications have been made to the insurance market by aircraft leasing companies, although this unprecedented situation is complex in terms of policy and legal interpretation and could take many years to resolve,” it explained. “Potential claims will mainly affect Lloyd’s insurers and the global reinsurance market,” said the insurer. Risk and insurance managers in the aviation sector will clearly be watching the latest developments nervously. The general aviation insurance market had already hardened dramatically before the start of the Ukraine war because of the impact of Covid-19. The turn in the general aviation market in 2018 occurred as large insurers started to withdraw from writing aviation risks. The general aviation market was particularly affected because it is typically the most volatile product line for aviation insurers, and capacity at the time was already lower than in other areas, explained Marsh. It said the hardening firmly took hold in 2021 and culminated in the toughest year-end renewal in 2022 seen for decades. Brokers say that rates could increase in 2023, depending on the magnitude of the hull war loss and its effect on the broader aviation insurance market, and as reinsurance costs rise. The aviation market is “bifurcated” said Jason Saunders, senior director and head of WTW Global Aerospace-North America. In the aviation all-risks market, buyers were reportedly seeing rate cuts ranging from the high single digits to 20%, and there was plenty of capacity for traditional hull and liability risks, Saunders said. However, due to the war and the confiscation of the aircraft in Russia, “significant” rate increases in the hull war and excess war liability market continued, said the broker. Rate hikes were anywhere from 100% to 250% for hull war and excess war liability risks, WTW said in its Insurance Marketplace Realities 2023 report issued at the end of last year. Experts are now warning that airlines could end up paying twice as much again for war risks coverage in 2024 after aviation insurers faced up to the hefty losses related to the war in Ukraine and in Sudan.

Aviation risk managers brace for further hardening as war claims filter through

Leasing firm agrees further $710m settlement for Aeroflot claim

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