The invasion of Ukraine had marine insurance actuaries scrambling to estimate the potential level of claims and their impact on future markets.
Analysts immediately indicated that marine could be one of the insurance sectors likely to be most affected by the war.
This story is part of a series in TW+ magazine on the wide-ranging impacts of the Russia-Ukraine conflict on shipping. Read the full stories when the magazine is published on 20 May.
S&P Global Ratings listed marine hull war insurance among six speciality lines of insurance that it believes are heading for “sizeable losses” from the conflict.
In its worst-case scenario, there are likely to be around $35bn in claims for speciality lines, resulting in potential losses similar to those caused by a natural disaster.
“We believe they [speciality claims] could reach the level of a sizeable natural catastrophe event,” S&P says.
But, among speciality lines, marine insurance is probably one of the least affected in terms of claims.
Most speciality claims are expected in the aircraft sector, and are linked to the potential loss of foreign leased aircraft, which have been taken over by the Russian government.
It is also estimated that half of the marine insurance sector’s exposure to Ukraine war-related claims are likely to be covered through the international reinsurance markets.
The S&P figures appear to be in line with Lloyd’s of London chief executive John Neal’s prediction that his organisation — one of the leading providers of marine cover — has potential losses in the “low-single-digit billions” of US dollars.
Insurance broker Miller also points out that there are unlikely to be future exposures for marine insurers: “From an insurance perspective, commercial shipping in the region has reduced significantly and many ports have been closed.
“Whilst these both reduce marine liability exposure, there could be instances where circumstances potentially give rise to a liability claim.”
However, Miller says the marine liability market is unlikely to be severely affected.
The largest current exposure comes from around 50 ships, valued at an estimated $920m, that were trapped in Sea of Azov and Black Sea ports. They could become a write-off under war risk insurance if they remain stuck for more than six months or more than 12 months, depending on the terms of the cover.
Although there is the prospect of an extended war, most underwriters believe there is a limited likelihood that all of the ships will remain in the region for a full year.
Another unknown risk is whether the industry could be exposed to cyber-attacks if they become a more prevalent part of the conflict.
“Challenges are likely to arise because cyberwar is not clearly defined and the attribution of attacks to nation states could also be difficult,” S&P says.
The uncertainty around the potential liabilities has made war risk underwriters naturally cautious about providing cover in the Black Sea and Sea of Azov region.
War risk rates that are typically quoted at less than 1% of ship value have recently been between 1% and 2% in the Russian high-risk areas.
In some instances, double-digit quotes have been offered, but the more extreme rates are being taken as a sign, as one broker explains, “that the underwriter really does not want the business”.
In the P&I sector, the mutual insurance providers, which cover more than 90% of the fleet, have been reluctant to talk about the handling of Russian accounts in the face of sanctions.
The European Union and the UK have directly named Sovcomflot as a sanctioned company, and the International Group clubs have started to remove its ships from their cover.
The P&I clubs join other marine technical and financial services sectors that have had to drop the Russian company’s business.
Norwegian classification society DNV says it can no longer handle the Sovcomflot account under current sanctions.
The Baltic Exchange also warns that if UK brokers provide services to Russian shipping companies, it would probably be viewed as a breach of sanctions.
Major European insurers Swiss Re, Generali Insurance and Munich Re withdrew from the Russian market at an early stage of the war. Brokers Marsh, WTW and Aon have all closed their Russian operations.
The big insurers appear to be willing to take a moral position on providing insurance services to Russian entities.
Munich Re chief executive Joachim Wenning says events “have shaken us all deeply. It is the task of all peace-loving people to show unity and support. Our full solidarity goes out to the people affected in Ukraine and their families.”
The removal of the main insurance groups and the likely withdrawal of P&I cover raise the question of where the Russian international fleet will find cover in the future.
Domestic marine insurance companies could step in. However, they can only provide cover for the limits required for international trading by securing reinsurance cover, mainly in the London market.
With the tightening sanctions regime and the withdrawal from the Russian market of the mainstream insurers, there is a question of how long that can continue.