A pandemic, then a war in Europe. Insurers have just taken two consecutive shocks which will not leave them unscathed. But Lloyd’s, the insurance and reinsurance market within the City, believes the dispute does not threaten the solvency of insurers.
“The impact will be major, but it will be sustainable”, declared Thursday its president Bruce Carnegie-Brown in an interview with “Echos”, on the occasion of the publication of the annual results, even if he recognizes that “it is still too early to know its exact extent. »
After a year 2020 weighed down by compensation linked to the pandemic, this City institution posted a pre-tax profit of 2.3 billion pounds last year, against a loss of 900 million a year earlier.
The conflict in Ukraine has a double effect on the activity of insurers. Some contracts exclude war from the terms of compensation, others, on the contrary, take effect. Compared to claims related to natural disasters, which reached £120 billion last year, the risk from the war in Ukraine would be lower, he said, and “insurers will have enough capital to compensate customers. »
Low exposure to Russia
The market located in the heart of the City ensures “to work in close collaboration with governments and regulators around the world” to guarantee the application of sanctions. Its direct exposure to Russia and Ukraine remains low: it represents less than 1% of its activity.
Indirectly, Lloyd’s is exposed through its presence in “aviation, shipping, commercial credit and political risk. “The highest risks are in cross-border transactions,” says Bruce Carnegie-Brown, citing energy distribution and cereals in particular.
“Global insurers and reinsurers generally have little activity or direct investment in Russia or Ukraine. However, they will feel the side effects of greater financial market volatility and higher energy prices,” Moody’s said in a note.
Moscow’s decision to confiscate some 500 Airbus and Boeing planes belonging to American and European lessors is one such risk. As a result of European and American sanctions, Russia has authorized Russian airlines to register in their name these aircraft which should have been returned to their owners before the end of the month.
Insurers and reinsurers could face claims for compensation of 9 to 11 billion dollars, estimates Moody’s. This cost could change depending on “negotiations with the airlines,” the agency said in a note, adding that “many insurers had withdrawn their coverage before the Russian law took effect.” Bruce Carnegie-Brown believes that this figure is overstated. “It’s the value of the assets. There will be a difference with the compensation claims,” he says.
This shock comes at a time when that of the pandemic has not yet been fully absorbed. Lloyd’s has so far paid £2.9 billion in compensation to its customers, or 86% of notified claims. The group considers that the impact could be felt until 2023. Other claims for compensation could still arise, for example through civil liability insurance in favor of directors, in the event of the bankruptcy of a company, or if some victims turn against their employer or doctor.