Kansas City, Mo. (January 18, 2023) – For the first time since February 2022, reinsurers have an opportunity to scale back exposure to losses as a result of Russia-Ukraine conflict.

Generally, a primary insurance company (one that sells policies to individuals or businesses) may attempt to mitigate its risk by transferring some of the risk to one or more reinsurers. The purpose is to allow a primary insurer to take on more risk and provide more coverage to individuals and businesses than it otherwise would be able to do. In essence, primary insurers look to reinsurers to offset the amount of losses paid out by primary insurers to policyholders.

Effective January 1, 2023, many reinsurers have canceled or curtailed policies for war-related claims regarding losses to ships, planes, and cargo shipments. Contract renewals between reinsurers and primary insurance companies typically occur on a 12-month basis. Now that reinsurers are able to renegotiate and reevaluate policies and losses related to the conflict, they appear hesitant to continue providing policies for war-related claims in the marine and aviation industry as it pertains to the subject conflict. From the beginning of this conflict, reinsurers in the aviation industry have seen nearly $10 billion in damages for leased aircraft unable to leave Russia.

In turn, primary insurers of planes and ships carrying cargo to, from, or near Russia, Ukraine, and Belarus are cancelling or limiting coverage to charterers and ship/aircraft owners. Without the backing of reinsurers, primary insurers may be unable to provide coverage for war-related claims to individuals and business, or will do so with lower limits and higher premiums.

We anticipate that this chain reaction will draw scrutiny and perhaps oversight by governmental actors. For example, in December 2022, several insurers out of Japan indicated that in 2023, they would not offer coverage for ships traveling in Russian waters. However, after pressure by the Japanese government, these insurers now seem to be willing to provide some coverage in specific instances. The cited concern by the Japanese government was Japan's ability to import liquefied natural gas from Russia's Far East.

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