The Russia-Ukraine Crisis: Aviation Insurance Insights
Delve into the complexities of aviation insurance in the context of the Russia-Ukraine crisis. Explore the implications for aircraft leasing, asset recovery, and insurance coverage amidst geopolitical tensions. Gain insights into the potential exposure and considerations related to sanctions and war coverage.
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Presentation Transcript
ISTAT Learning Lab Russia/Ukraine Crisis March 22, 2022
Now what? What s Putin s Plan? Airlines have resisted returns and repos Russia has taken steps to re-register aircraft in Russia and make aircraft returns more difficult Draft Russian decree in circulation leases continue but ignores sanctions and lease terms (payment in rubles; Russian maintenance, insurance & registration; permission for early return) Asset Recovery: Has window closed? Will some aircraft still be returned? Practical considerations Insurance: Will take a little deeper dive to follow What else; we won t get into here: Cross Border Financial Instruments: e.g., Letters of Credit Oil and fuel prices Supply chain issues (e.g., titanium, aluminum) Actions by other potential rogue states Impact on Traffic Fx Despite current crisis, this industry has been resilient at recovering Mar 22, 2022 2
Typical Aviation Insurance Coverage Hull (excludes war) Main Policy Cover damage to aircraft, including theft $ Limit per aircraft and in aggregate Cancellable on 30-days notice Liability Losses other than aircraft (death, bodily injury 3rd party property Also, subject to $ Limits Cancellable on 30-days notice War Coverage War Hull Loss to aircraft by war, terrorism and confiscation Cancellable on 7-days notice War Excess Liability Also cancellable on 7-days notice Disclaimer: These materials are general in nature and are not intended to provided any advice, legal or otherwise, and may not be relied on. Common words and phrases may be used rather than policy or legal terms and language; please consult your legal and insurance advisors. Mar 22, 2022 3
Basic Russian Airline Insurance Structure Airline Primary Insurance (Russia) Hull and liability plus War Hull & excess liability Additional Insured Reinsurance (Non-Russia) Principally through UK, EU & US Covers approx 95% of Primary AIRCRAFT LEASING CORP AIRCRAFT LEASING CORP Direct access Cut through clauses Assignments Purchased directly Lessor Policy Contingent (responds when primary doesn t) Possessed: Off lease or in course of repossession Cover Hull, Liability and War Mar 22, 2022 4
Threshold Insurance Considerations What s the Potential Exposure: Total insured values? How widely is exposure disbursed into insurance markets? Bailout? Sanctions: Will Insurers use sanctions to avoid claims? Insurance for non-Russian airlines operating into Russia? Constructive Loss (Theft) or Confiscation: Which is it? When did loss occur? Validity of Notices of Cancellation? How does this get resolved: Litigation? If so, where? How Long? Settlement? Who has a seat at the table? Potential Knock-on Impacts Costs and capacity for aviation insurance? Future of war cover? Industry bracing for a protracted battle Mar 22, 2022 5
Whats Next Shifting to the Long-Game Now! Future Asset Recovery Aircraft Engines Records Registration Sanctions Asset Preservation Records Maintenance Recovery? Records Digitization? Cross-Border Acceptance Recovering Losses Insurance Governments BIT; others Sanctions Walk-Back? Sanctions Clarifications Russian Response Insurance Costs & Capacity Plan B for War Risk? Rule of Law Treaties Repossession Risk-Premiums Future Sanction Design Insurance Preparing for claims Accessing reinsurance Long-Term Industry Alignment critical: AWG, ALI, ICAO and others Mar 22, 2022 6
