The Russian war risk market has been thrown into turmoil as claims related to the Ukraine conflict start to land on London underwriters’ desks, and security analysts warn of an increasing threat to assets.
Four weeks ago, the whole of Russia was declared a war risk zone by London’s Joint War Committee. Since then, a complicated rating picture has emerged for the country outside the Ukraine war zone as contracts are renegotiated to reflect the new designation.
“It’s basically all over the place,” said one broker. He said underwriters have taken polar positions on rating Russian risk, and rates are varying wildly between east and west Russian ports.
War risk insurers are becoming increasingly nervous as they face a mounting claims bill from the conflict.
Evidence at a UK Treasury Committee meeting on sanctions indicated that the cost of repatriating thousands of seafarers from the war zone could have already run into the tens of millions of US dollars.
The bus ticket and security costs from Ukraine ports in the firing line to safety in Moldova can range between $12,000 and $15,000 per seafarer, and is principally a war risk cover, the committee was told.
According to the International Maritime Organization, some 1,500 seafarers have been evacuated so far, which could cost underwriters around $22.5m in total. Another 500 seafarers are waiting to be evacuated.
Although a relatively modest claim by marine insurance standards, it is a substantial cost to the war risk market, where premiums are typically just 0.01% of ship value.
Larger claims
But it is the spectre that significantly larger claims are on the horizon that has spooked the market.
One well-known war risk insurer recently shocked the London market by pulling cover from a high-value ship trapped in a Ukraine port.
“They pulled cover while a ship was under cover, you just don’t do that,” said one underwriter.
The drastic measure by a household name insurance company was taken as an indication of just how nervous underwriters are becoming over major claims resulting from the conflict.
As earlier reported by TradeWinds, war risk underwriters will be on the hook for 50 ships, valued at more than $900m, if they remain trapped in Ukraine ports for more than six months. The conflict is approaching the end of the second month with little sign of an end.
Aviation war risk insurers, which often share accounts with marine war risk underwriters, are already facing up to a potential $3.5bn claim from the loss of aircraft in Russia financed through Western leasing companies. Under a new law, the aircraft are set to be confiscated by the Russian government.
Realistic threat
The possibility that Western ships could be the next to be requisitioned by the government of Russia led to the whole of the country recently being declared a high-risk zone by the London market. Security analysts have told underwriters that the confiscation of ships by the Russian government is a realistic threat.
The decision has led to a hike in rates at Russian ports outside the Black Sea and Sea of Azov war zone ports, which have doubled to 0.02% of hull value. Calls at western and Baltic-Russian ports are being charged a further premium over eastern ports.
But the situation is enough for some underwriters to decline Russian business altogether, while others have seen it as an opportunity to grow their war risk business.
“What we are seeing is the more conservative underwriters are walking away from Russian business, while those that want to expand their war risk book see it as an opportunity,” said one broker.
