Russia said today it has re-registered 800 aircraft after President Putin signed a law last week which allows Russian carriers to take ownership of foreign-leased planes.
The news comes on the same day Moscow said 78 of its aircraft were impounded by foreign governments. “(We have) lost 78 planes,” said Russian transport minister Vitaly Savelyev.
The Kremlin didn’t specify how many jets, out of the 515 leased from foreign companies, were on the list.
The move, a retaliation after Western countries closed their airspace to Moscow following the invasion of Ukraine, could create a $10bn nightmare scenario for both lessors and insurers.
“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,” said analysts at ratings giant Fitch Ratings.
According to an analyst note, quantifying claims is hard as there might be disputes over whether the coverage expired once sanctions were imposed.
Despite being the highest in the history of aviation insurance, potential losses will not hit the majority of insurers as hard as expected.
“We believe most insurers and reinsurers would suffer only a hit to earnings, rather than capital depletion, and we would not expect material ratings implications,” Fitch Ratings’ analysts wrote.
“There might be rare exceptions among specialised Lloyd’s carriers, where aviation losses in combination with other large claims could lead to modest capital depletion.”
Analysts believe a knock-on effect on prices will be the biggest consequence on the market.
“We would expect insurers and reinsurers to respond by increasing premiums, incorporating more exclusion clauses in their contracts, and cutting their exposure,” analysts said.
Following Russia’s retaliation to sanctions, premiums could be raised if it proves difficult for lessors to retrieve their fleets because of a lack of cooperation on Moscow’s side.
“Insurance premiums for aircraft leasing companies will also likely increase if it proves difficult for repossessions to take place in a timely manner,” David Warnock-Smith, professor of aviation management at Buckinghamshire New University told City A.M.