Lloyd’s of London war risk underwriters are holding back reserves for insurance payouts potentially running into hundreds of millions of dollars for ships trapped in Ukraine.
The Lloyd’s primary and reinsurers hold significant exposure for the full value of the dozens of ships that have been unable to leave Ukraine since the war broke out.
Under war risk trapping and blocking clauses, vessels trapped in a war situation can be declared a constructive total loss (CTL) after six or 12 months, depending on the terms.
In its 2022 annual report, Lloyd’s of London described the losses as “potential” rather than realised losses for the year.
“Marine war portfolios are currently holding reserves in the 2022 year of account for potential losses which may materialise as a result of blocking and trapping clauses in the Black Sea arising from the war in Ukraine,” it said in its annual earnings statement.
No obligation
Last month, one year passed since the outbreak of war in Ukraine in February 2022. One question delaying the settlement of claims may be the ownership of vessels after they have been declared a CTL.
Frederic Denefle, managing director of French war risk specialist Garex, speaking at the Marine Insurance London conference last week, said underwriters are under no obligation to take control of a vessel once it has been declared a CTL.
He said the sale-and-purchase market is the most likely way ownership of the vessel will be resolved.
“After a vessel has been declared a CTL, the insured has to issue a notice of abandonment, but the underwriter does not have to take delivery of the vessel out of the owner’s hands; everyone knows the underwriter will not accept it,” he said.
Lloyd’s figures show that its marine, aviation and transport divisions realised a 32.4% increase in earned premium to £3.8bn ($4.7bn) partly due to the war in Ukraine.
“Marine, aviation and transport lines continue to see positive price momentum coming through the portfolio. 2022 was dominated by the Russian invasion of Ukraine leading to sharp pricing increases, particularly in aviation war and specific marine war breach calls,” Lloyd’s said.
Although it said marine rates generally continued to harden in 2022, the cargo and marine liability market have been the star performers.
“Marine liability saw significant price increases as well as wording tightening across the reinsurances placed into the market.
“Cargo, the largest of the sub-classes in the portfolio, continues to deliver excellent results following years of positive price momentum and improved terms and conditions.”
