Lloyd’s of London: insurance market is well covered to deal with war risks
A state-orchestrated campaign of cyber attacks would leave insurers vulnerable to claims
The calm between the storms might be how 2021 is remembered by global insurers.
At the heart of the industry is Lloyd’s of London. The syndicated market reported its best year of the past six at annual results on Thursday. Profits of £2.3bn reflected a recovery from the pandemic and efforts to lower costs at the 300-year-old institution.
Lloyd’s also said it was expecting large losses from Russia’s continuing conflict in Ukraine. The size of those liabilities remains a big open question. Lloyd’s chief executive John Neal would only say the hit would be in the billions of dollars and that there is enough capital to cover it. More certain is that the plethora of claims from aviation, shipping, credit and trade policies will take years to resolve.
Precedent suggests that when states go toe-to-toe, the insurance industry is kept off the top of the casualty list. War coverage is usually specific and policies are subject to seven-day cancellation clauses. Insurers can implement these to mitigate large-scale losses. Reports suggest many of these had already been called by March 12. Dates will provide the subject of future legal debates as claims advance through the courts.
Even so, the inclusion of these clauses in aviation and marine policies has not prevented them from becoming a major source of angst for investors. About $10bn worth of aircraft are stranded in Russia. The country has passed laws allowing them to be seized by the state. But losses after reinsurance will be a fraction of that amount. The collapse in shipping activity at Black Sea ports is likely to reflect the risks and soaring costs of marine insurance incurred by those operating in the region.
Global insurance losses from man-made disasters have rarely exceeded $10bn annually since the September 11 attacks, according to reinsurance provider Swiss Re. Lloyd’s core capital of £6bn appears to leave it well enough protected. A bigger risk could be a state-orchestrated campaign of cyber attacks. Such an offensive would be difficult to pin on Russia. That would change matters, leaving insurers vulnerable to claims.