Some of the biggest names in ship reinsurance are days away
from ceasing to cover key war-related risks for vessels going to Russia and
Ukraine, a potential source of alarm for shipping firms moving everything from
oil to grains, according to a Bloomberg report.
Hannover Re and Munich Re are among reinsurers who have
warned that they will cease to underwrite any kind of risks – even indirect
ones – related to the conflict in Ukraine from the start of next year,
according to people familiar with the matter.
“The major German reinsurers and others are looking to
exclude losses emanating from or linked to the Russia and Ukraine war,” said
Chris McGill, Class Underwriter for Cargo at the insurance company Ascot Group,
declining to name specific firms. “This is the first time we’ve ever had to
contemplate a material change to our reinsurance program.”
The potential pullback by reinsurers comes after many have
seen hits to their results from the war. Hannover Re said it set aside a
reserve of 331 million euros ($351 million) in the first nine months of this
year for possible losses tied to the conflict.
If a solution is not found, some owners and their first-tier
insurers could have to take on a bigger slice of risk for ships sailing to the
two countries. It remains unclear at this stage if there is scope for Hannover
Re, Munich Re, or others to relent, or how much appetite there is from
elsewhere to fill the void.
War-risk cover spans numerous things, including bombs,
torpedoes, terrorism, external attacks, and vessel seizure.
Representatives for Hannover Re and Munich Re declined to
comment. Other reinsurers are thought to be taking a similar approach to the
two firms.
The less that reinsurers cover, the greater the onus on
insurers. Some will likely have to reduce what they offer, forcing shipowners
into a rush to try to find alternatives, or even operate with less cover.
“We’ll have to reduce the limits we put up,” McGill said. “That
will force rates to increase, as you’ll get an automatic reduction in supply.”
Higher premiums and a lack of cover threaten to complicate
exports of key raw materials, potentially adding to supply chain chaos and
global inflation pressures if shipping gets snarled.
While sanctions on Russia are not thought to be a direct
motive for the reinsurers’ move, they nevertheless make handling the nation’s
commodities more complicated.
Anyone who wants to tap UK or European insurance for Russian
crude can only do so if they pay $60 a barrel or less for the cargo. A similar
mechanism will begin for refined fuels in early February.
Negotiations between insurance providers and their
reinsurers happen once a year and are often contentious. This year’s talks have
been particularly fraught because of the war, sources said.
If the big reinsurers do ultimately stop covering Russia and
Ukraine marine business, shipowners might turn to insurance from Chinese or
Turkish firms, according to Denis Shashkin, a Protection and Indemnity
(P&I) correspondent at the major Russian port of Novorossiysk.
“In the short run, premiums could get higher, but in the
long-run it’s unlikely to make a big difference,” he said. “Shipowners may
decide not to insure cargoes, but they need to get P&I insurance in order
to have their vessels hired by charterers.”
The wording of the exclusion clauses, and the fact that they
span indirect risks, is a cause for concern because it is unclear what other
trades might be impacted, McGill said.
So far, these things haven’t been clarified, he said,
echoing the views of several other industry officials.
“If we get another Arab spring related to food price
increases, are you going to say to us ‘we don’t have reinsurance for that
because it’s being caused by or directly linked to the war?,’” he said. “They
can’t answer that.”
