Lloyd’s expects significant losses following invasion of Ukraine

The ongoing conflict in Ukraine will be a major claim to the market in 2022, Lloyd’s said as it delivered an impressive set of 2021 full year results.

For 2021, Lloyd’s posted GWP of £39.2bn (2020: £35.5bn); profit before tax of £2.3bn (2020: £0.9bn loss); an underwriting profit of £1.7bn (2020: loss of £2.7bn); and a combined ratio of 93.5% (2020: 110.3%) – the first time for several years that the market has returned to underwriting profitability.

In its latest full year results, Lloyd’s said that the Russian invasion of Ukraine will have short, medium, and long-term impacts on both Lloyd’s performance and balance sheet. The primary sources of risk, it said, relate to underwriting exposure arising from sanctions, exposure within investment portfolios and the impact on operations.

It stressed that there is a high degree of uncertainty around the eventual outcomes at this point and it will continue to monitor the situation closely.

According to Lloyd’s chairman Bruce Carnegie-Brown, unrecoverable planes are likely to cause the biggest losses – Moscow has passed laws to impound ¢10billion (£7.6billion) of aircraft leased to Aeroflot and other Russian airlines by Western organisations.

However, Lloyd’s has sought to downplay media speculation over the size of the loss, given that some reports have suggested multi-billion insured losses to the aviation market from the impounding.

Fitch Ratings, for example, had warned that insurers and reinsurers could face claims as high as $10 billion in a worst-case scenario due to the grounding of planes in Russia.

More than 500 planes that are financed or owned by non-Russian lessors are stranded in Russia.

“The lessors have hull and liability insurance, as well as specific aviation war cover, and will call on their insurance to be indemnified against expropriation of their planes,” Fitch said, adding that “most aviation policies are underwritten through the Lloyd’s of London market, and we estimate that 30%–40% of primary insurers’ exposure is ceded to reinsurers.”

According to Carnegie-Brown, after aviation losses the next biggest anticipated losses to the market are likely to come from claims related to ships trapped in the Black Sea, and to disrupted exports of cereals and agricultural products from Ukraine and Russia.

Lloyd’s direct premium derived from Russia and Ukraine is significantly less than 1% of total GWP. Indirect underwriting exposures arise mainly across the aviation, marine, trade credit and political risk lines of business.

In its results Lloyd’s said: “We are also working closely with governments and regulators across the world to ensure we interpret and enact sanctions requirements at pace, together with other legal and regulatory obligations.”

“Our investments and assets under management are largely fixed income and our strategic asset allocation has limited direct exposure to the crisis; our indirect exposures are also minimal and both direct and indirect exposures account for less than 1% of total invested assets across the chain of security.”

“The situation is fast evolving, and in order to respond swiftly to developments, we have set up an executive response group that meets daily to monitor the situation and respond to government actions. The group is continually assessing the operational impact upon the Society and Lloyd’s market and remains in close consultation and communication with market participants.”

At this early stage, it added, it is difficult to assess the full financial impact of this crisis, however there are no indications that this will impact the Lloyd’s market or the Society of Lloyd’s ability to satisfy regulatory capital requirements or meet their financial obligations.

Fitch Ratings, for example, had warned that insurers and reinsurers could face claims as high as $10 billion in a worst-case scenario due to the grounding of planes in Russia. More than 500 planes that are financed or owned by non-Russian lessors are stranded in Russia.

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