Aviation insurance – how are Sudan conflict, Russia-Ukraine aircraft lawsuits impacting the market?

Fierce fighting has erupted in Sudan’s capital, Khartoum, amid a power struggle between its army and paramilitary force RSF. Nearly 100 civilians were reportedly killed in the clashes over the weekend.

The violence deepens concerns among insurers, who are still reeling from the threat of catastrophic claims due to seized aircraft in the Russia-Ukraine conflict last year.

Nigel Weyman (pictured), global executive for Gallagher Specialty’s aerospace team, warned that aviation losses from Sudan will inevitably stack up in the war market.

“The Sudan issue create more tanks in the whole market,” Weyman told Insurance Business. “There were 100% rate increases again this year, and these are big changes in premium levels.

“Sudan adds to that difficult situation, so there’ll be no stopping the momentum.”

Russia-Ukraine aircraft claims looming

According to the Gallagher Specialty executive, the war market already “has its antenna up” because of potential losses in Russia and Ukraine.

AerCap, the world’s largest aircraft lessor, has sued insurers (notably AIG and Lloyd’s of London) for $3.5 billion over the loss of 116 aircraft and 23 spare engines under its all-risks policy. Alternatively, it is seeking $1.2 billion under its war risks policy.

The suit, including those by other lessors, went to London’s High Court last month.

Companies such as Dubai Aerospace Enterprise and Falcon are also seeking redress from insurers, including Chubb, AIG and Swiss Re, for aircraft and equipment valued at $900 million under all-risks policies.

“The pressure is on war insurers to start paying out the claims,” said Weyman. “As a result, all premiums have gone up by a huge amount. In many cases, they’ve doubled.

“The whole war side is a much more treacherous and difficult negotiating environment. There will be further [rate] increases in 2023.”

With more than 400 aircraft, worth almost $10 billion, stuck in Russia, AerCap said it was out of pocket to a ‘colossal’ degree and has lodged a lawsuit that hinges on whether the alleged loss of the aircraft has triggered war-risk insurance policies https://t.co/yKmyUe033L pic.twitter.com/BUlNPSfwrn

— Reuters Legal (@ReutersLegal) March 13, 2023

Aviation reinsurance undergoing ‘seismic changes’

The aviation reinsurance market has hardened notably in recent months. Reinsurance capacity has tightened, particularly for war covers, and coverage is now subject to tougher restrictions and limitations.

This made for very challenging negotiations at the January 1 and April 1 renewal dates and the market is undergoing “seismic changes,” according to a new Gallagher Specialty report.

For both Hull war/third-party liability war, overall capacity has reduced during the past 12 months, despite the arrival of several new entrants. Gallagher also said it expected a reduction in deployed lines, particularly on clients with large geographical exposures, values, and limits.

“Although the threat of aircraft in Russia becoming a claim hasn’t materialized, reinsurers are reacting,” Weyman said.

Unprecedented losses from Boeing 737 Max 8 tragedies in recent years have also hit reinsurers hard, leading them to pass on costs to the primary insurance market.

“It’s very difficult for a direct insurer to manage the pressures from reinsurance costs, pressures from management, and commercial pressures,” said Weyman. “It’s not plain sailing for anybody.”

When might the Russia aircraft insurance lawsuits be resolved?

The timeline for lawsuits by aircraft leasing companies is farther out that many expected, according to Weyman.

“Some of the court cases are scheduled for 2024, so it’s quite a long wait for that shoe to drop,” he said.

“In the meantime, we’re trying to carry on and almost ignore the consequences of that, to a large extent. It’s very frustrating for our clients, and as brokers we want to see these things resolved.

“But these are very, very complicated legal actions. If they go the full course of that litigation, then the can will be kicked a long way down the road.”

Do you agree with Weyland’s outlook on the war aviation market? Sound off in the comments below.