As 2025 unfurls, some of the world’s largest insurers are waiting to see how much they are going to have to fork out for policies linked to stranded aircraft in Russia. This could have an impact on aviation insurance in Asia.
These court cases date back to 2022, when Western sanctions forced aircraft leasing companies to cancel their contracts with carriers, leaving billions of dollars worth of aviation assets out of reach.
Insurers argued that they were not liable for the full loss, assessing the claims on the basis of “war risk” cover, which is capped. Lessee companies, however, argue that the planes were not stranded because of the Russia-Ukraine war. If this can be proven, then the claims would fall under “all risks” cover, and the payout would be much higher.
On the hook
These aviation court cases are taking place in three main jurisdictions: Dublin, London and the United States (with courts in California, Florida and New York being kept especially busy).
The court case in Ireland wrapped up before Christmas, and news of settlements is just now starting to emerge.
According to Reuters, two of the world’s largest lessors, Avolon and BOC Aviation, said on Friday 7 that they have fully settled lawsuits in the Irish courts.
Some of the cases taking place in the US have also been finalised, with settlements reached.
It is in London where the hottest action could be seen this year. The litigation in the London courts began in October and should wrap up in the coming weeks, with settlements expected shortly afterwards.
“Traditionally, aviation insurance policies have been pretty lightly litigated,” says Russel Butland, a lawyer with A&O Shearman. “Prior to the current cases going on in England, the last time there were major aviation insurance cases making their way through the English law courts was in the 1990s, after the first Gulf War, so this gives you a bit of an idea about how rare it is for this part of the market to be making such headlines.”
Russel Butland
Laywer at A&O ShearmanThe sums in question are huge. At the time HIVE Underwriting, which provides aviation hull war cover, estimated that total market exposure could be more than €15 billion. Will Gaunt, a class underwriter for HIVE, says that the actual figure may be slightly lower than this, due to policy aggregate limits, but any forced settlement is still likely to have a significant impact on the industry.
“Obviously we don’t yet know what the eventual settlement will be, but the ongoing court cases are like to have a fairly significant impact on the global aviation insurance market,” says Gaunt. “This could potentially lead to capacity constraints, with some insurers pulling back from certain markets. A lot of this will depend on how the reinsurance market responds. Aviation cover is heavily dependent on reinsurance, so if reinsurance costs rise then this will certainly have an impact. Everyone is watching this at the moment.”
Will Gaunt
Class Underwriter at HIVEMarket impact
Sources report that the Asian aviation insurance sector is awash with capital at the moment, with downward pressure on rates. This may, to some extent, help cushion some of the fallout from future court rulings. However, some areas may feel the pinch more than others.
“There isn’t an abundance of capacity in the contingent aviation cover market at the moment,” says Gaunt. “In addition, a lot of airline hull war cover may be a bit speculative at the moment, used to support other lines of business.”
In terms of Asia, he says that he expects the court verdicts to directly contribute to increased volatility.
“Airlines don’t like such volatility, so any insurer that demonstrates a degree of stability and continuity should be able to win business,” says Gaunt.
Dorygel Calimlim, APAC Head of Aviation at Howden Specialty, says that brokers in the region have been making a lot of noise about volatility in the region due to “the settlement of Russia confiscation losses that are widely predicted to be the largest loss to the aviation market in history”.
However, she also feels that some of these incumbents may be overplaying the volatility in the market in order to avoid upsetting the status quo.
Last August, Howden set up a new aviation hub in Singapore, which Calimlim says brokers already in the market regard as an “unwelcome challenger”.
“The legacy brokers’ messaging has always been about impending doom and gloom around the corner and to avoid such volatility you need to stick with your current insurers (and broker),” she says.
Dorygel Calimlim
APAC Head of Aviation at HowdenHowever, despite the significance of the trial, not everyone agree that the verdicts will have a significant impact on the sector.
“My instinct would be that much of that impact on capacity and pricing has already been felt, and that much of the downside risk of these court cases has probably already been factored into market capacity and market pricing,” says Butland from A&O Shearman.
The head of aviation at an industry group, who preferred to speak anonymously, shares these views.
“The case involves huge sums but is a specific circumstance, so far without parallel, and is complicated by sanctions. It’s difficult to see a direct bearing on Asia apart from consideration of future over-flights and whether Asian carriers wish to service Russian airports either now or in more harmonious times,” he says.
Policy wordings
Where it might have more of an impact, however, is over the future wordings of insurance policies – and this is something likely to keep aviation insurers, including those in Asia, busy for a number of years.
Russel Butland
Laywer at A&O Shearman“Aviation insurance policies are fairly heavily standardized, and the Lloyds Markets Associations Aviation Insurance Clauses Group provides detailed suites of model clauses that are very commonly used across all of these policies. We haven’t seen significant changes to those clauses yet, but that is an area where the outcome of these judgments may well then generate review,” says Butland.
“At the moment, the insurance market has an understanding of how those wordings are intended to work, and probably doesn’t see the need to change those wordings unless and until that understanding is contradicted by the courts. If ultimately the court – whether that be in England or Ireland or the US – interprets those clauses differently, then I would expect the wording to be pretty closely scrutinised by the market.”
