Sanctions on Russia: impacts in the insurance sector

Last updated: 4 April 2022

The ban on the provision of insurance and reinsurance services associated with goods and technology in the aviation and space industry has had a major impact worldwide as one of the potential causes of default on aircraft leases involving Russian-based airlines.

However, the insurance and reinsurance market may be called upon to respond to the collateral effects of such defaults since financial and operational lessors will face great difficulties in recovering ownership of the aircraft leased to Russian operators and considerable financial impacts will result from that. There is a widespread fear that we may be on the verge of the biggest losses ever in the aeronautical insurance business.

It is also important to refer the sanctions imposed by the EU on exports to Russia, which extend to all insurance associated with those exports.

The situation we are experiencing has some potential for litigation as the policyholder, under policies issued prior to the outbreak of war and/or the application of sanctions, may come up against limitations and exclusions generally applicable in war situations and in claims involving sanctioned States.

Also note that Swiss Re and Munich Re, which are leaders in the reinsurance market worldwide, have already announced their decision not to renew contracts and to suspend new business in Russian territory.

Without prejudice to the sanctions framework already in place, it is anticipated that the measures imposed by the United Kingdom will have the most significant impact since it is the world leader in the global (re)insurance market and companies from all over the world turn to the specialized Lloyd’s insurance market, with a particular preponderance in relation to the insurance and reinsurance market for the aviation, maritime and energy sectors.

Meanwhile, information is also available on the package of retaliatory measures imposed by the Russian Government, including a ban on national insurers from entering into contracts with insurers, reinsurers and insurance brokers from hostile states and insurers, reinsurers and insurance brokers controlled by residents of hostile states. The list of hostile states includes, among others, the United States of America, European Union countries, the United Kingdom, Canada, Japan and Australia. These restrictive measures will also apply to domestic insurers, reinsurers and insurance brokers controlled by foreign investors.