Not a war, just a special military operation. Who knows what Putinesque tricks insurers will play with the small print when the claims start rolling in. But Lloyd’s of London is still braced for some hefty payouts. It reckons the “conflict in Ukraine will be a major claim to the market in 2022”.
Still, it says it’s nothing it can’t handle — not least now that Lloyd’s has reversed 2020’s Covid-fuelled £887 million pre-tax losses to post a £2.28 billion full-year profit (report, page 46). As chief executive John Neal points out, Ukraine, Russia and Belarus represent “less than 1 per cent of Lloyd’s global footprint”, with the group expecting “direct and indirect claims” to be “manageable” and “not create solvency challenges”. His best guess of the financial damage? “Low single-digit billions”. For context, Lloyd’s paid £19.9 billion of gross claims last year. So at worst Ukraine should only be the swing factor deciding Lloyd’s profitability.
Even so, there are big insurance tussles to come. And nowhere more so than in the aviation market, thanks to the Kremlin nicking hundreds of planes, worth about $10 billion, owned by global aircraft leasing companies. It’s a heist dubbed “Grand Theft Aero” by Paul Jebely, head of asset finance at the law firm Withers, in comments to the Financial Times. And one that underlines Neal’s remarks that “we are currently living through a period of heightened risk, not seen or experienced for 75 years”.
Pre-war, there were 860 aircraft operating in Russia, 515 of them leased, on data from the aviation analytics group Cirium. Thanks to European sanctions, all leasing contracts must end by Monday. Cirium calculates that lessors have got almost 80 aircraft out of the country but the rest are stranded.
Worse, Putin has broken civil aviation’s Chicago Convention to re-register leased aircraft in Russia. Since March 14, Cirium has counted 111 instances of Russia seizing Bermuda or Ireland-registered aircraft. As Rob Morris, head of consultancy at Cirium, points out, it’s a breach of the convention to “deregister a plane without the owner’s permission”.
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AerCap, the world’s No 1 aircraft leasing group, has the biggest exposure to Russia, with a pre-war 152 planes, on data from the aviation consultancy IBA. Others with aircraft there include the Japanese-controlled SMBC and Avolon Aerospace. But their insurance status is complex. Peter Walter, IBA’s director of asset management, points out that typically it would be the airline that insures the plane with the lessor added on to the policy. But from Monday, while planes may still have Russian insurance, there can be no reinsurance via the London market.
Much will depend, Walter says, on whether “lessors have adequate cover under contingent liability insurance”, covering such things as war risk or having planes confiscated. And, here, lessors typically have policies covering their entire fleet, not individual aircraft. It’s also unclear whether lessors will be able to claim total loss of the asset, even if a plane would be unable to fly without full maintenance and servicing records, now in the hands of the Kremlin. As Walter puts it: “Lawyers will be poring over all this for years.” Indeed, it’ll be a while before Lloyd’s knows its full Ukraine insurance bill.
P&O in the dock
It’s not every day you get the chance to go on holiday with a self-confessed law-breaker. So, for novelty value alone, the P&O Ferries boss Peter Hebblethwaite brings something different. Asked by MPs on a joint business and transport committee if he “wilfully broke the law” by summarily sacking 800 crew, he replied: “I completely hold our hands up that we chose not to consult.” To boot: “I would make this decision again.”
So not just a law-breaker but a potentially serial one. Yes, maybe Hebblethwaite gets full marks for honesty. And his justification for not consulting the workers — that “no union could accept our proposals” — is grounded in realpolitik. He’s right: no union would have accepted P&O’s brazen plan to chuck 800 seafarers overboard and replace them with agency workers on £5.15 an hour: almost four quid below the £8.91 minimum wage. And not least the RMT, which on past form would have sunk the ships first. The P&O chief claimed it was the only way to save the loss-making business.
Yet, the government can’t let P&O and its £325,000-a-year boss get away with it. What sort of precedent does it set? Yes, the ships are flagged outside Britain. But they dock in Dover and Hull. And as Labour MP Andy McDonald put it: “You can’t just absent yourself from the legal framework of the UK.” If a company owned by Dubai’s minted DP World can treat UK staff with contempt, what’s to stop anyone else?
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The government says it’s looking at “any options that are open”. Would banning P&O directors be one? Law-breakers aren’t usually allowed to run companies. Or finding some legal basis for the sort of fine that would deter others? And who wants to sail with underpaid crew, anyway? A consumer boycott would ensure the message sinks in.
Dragged to the exit
Now Renault is reversing out of Russia. And all thanks to being named and shamed by President Zelensky, with his address to the French parliament backed up with calls from Ukrainian foreign minister Dmytro Kuleba for a global boycott of its cars. Similar efforts forced Nestlé into a U-turn, finally removing KitKats and Nescafé from the shelves, though not baby food.
Yes, for companies with factories in Russia, retreat is complex, with local managers’ safety a priority. But being on the wrong side of Zelensky is not a good look. Unilever and Reckitt should be getting out too.
