Lancashire, Beazley, Hiscox & AXA top risk list of $1.5bn aviation losses from Russian aircraft

Insurers will likely suffer nearly $1.5 billion in losses on account of the expropriation of leased aircraft by Russia following sanctions, with Lancashire, Beazley, Hiscox and AXA likely topping the hit list, according to the new low-bid on a market of declining estimates.

“We assume Aviation War losses of $1.5bn for the market,” Jeffries analyst James Pearse wrote in a note to clients. “Conflict losses should be manageable.”

It's an ever-shrinking target following early loss estimates upwards of $10 billion or more, built to reflect estimated asset values of $13 billion for the over 500 aircraft lost.

Lloyd's CEO John Neal took the biggest bite out of those early estimates with a claim that insured values are likely only 15 to 20% of total asset values. Fitch had trimmed its worst case estimate of $10 billion to a baseline estimate of $5-6 billion on account of likely aggregate limits built into contracts.

Cancellation timing is a key limiting factor and a big wildcard, according to David Hampson, CEO of Schrager Hampson Aviation Insurance Group. Most insurers will have cancelled policies shortly after the Russian invasion of Ukraine, while the top trigger event for a claim is more likely the March 14 implementation of the Russian law re-registering the expropriated aircraft in Russia, Hampson told a Jeffries webinar on March 24.

Insurers will make an early offer given the obligation to pay claims in good faith, but uncertainties over precise liability could trigger a lowball bid.

“I am sure that what the insurers are willing to offer will be different from what the insureds are expecting," Hampson said. "It could be years of litigation until this is settled."

Lancashire, Beazley, Hiscox and AXA are likely tops on the list of London names facing a hit, analysts at Jeffries claimed in recent research. They are working top-down from presumed market-share against top lessors, then handicapping the industry as a whole for exposure to the top leaser, AerCap, on reports that the AerCap policy does not include a cancellation clause but has an annual loss cap of $1.2 billion.

AerCap is the most exposed on 152 aircraft with a total value neighborhood $2.4 billion, data from the International Bureau of Aviation (IBA) has indicated. But Russian lessors also rank high. Russian state leasing company GTLK's 95 aircraft rank it second on asset value in excess of $2 billion. Russia's VTB Leasing with just under $2 billion and Sberbank Leasing round out the top five.

Jeffries cut its 2022 earnings estimates for Beazley by a head-turning 23% on calculation that impacted lines of business account for approximately 4% of Beazley group premiums and that market yields are also set to hit the investment side. Pending losses look “manageable” at an estimated $0 million, but the range of possible outcomes looks “wide.”

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