This decision follows the exit of reinsurers from the region due to significant losses. Reinsurers, who insure the insurers, typically renew their 12-month contracts with insurance clients on January 1st, which allows them to reduce their exposure to the region. The war in Ukraine, as well as Hurricane Ian in Florida, have contributed to the losses faced by reinsurers.
P&I Clubs No Longer Able to Offer War Risk Cover in the Region
Four of the biggest P&I insurers, known as the American, North, UK, and West clubs, have announced that they will no longer be able to offer war risk cover for liabilities in Russia, Ukraine, and Belarus starting on January 1st. These clubs cover approximately 90% of the world's ocean-going ships.
The UK P&I Club stated that the issue arose due to a lack of reinsurance for reinsurers, also known as retrocession. American P&I also announced that it had received a "notice of cancellation" for the region from its war risk reinsurers and was canceling its insurance.
Impact of Cancelled War Risk Cover on Ship Owners and Charterers
Ships typically have P&I insurance, which covers third-party liability claims such as environmental damage and injury. Separate hull and machinery policies cover vessels against physical damage. Canceling war risk coverage by insurers will make it more difficult for ship owners and charterers to find insurance.
According to industry sources, this may result in higher prices and some ships sailing uninsured. Providers of reinsurance and retrocession, including global players Hannover Re, Munich Re, and Swiss Re, and syndicates in the Lloyd's of London market, have not yet commented on the situation.
Japanese Government Urges Insurers to Take on Additional Risks for Marine War Insurance
Earlier this month, Reuters reported that a proposed contract clause circulated by reinsurers excluded war-related claims for planes and ships in Ukraine, Russia, and Belarus.
However, this week a senior official at the Japanese industry ministry stated that the government had urged insurers to assume additional risks to continue providing marine war insurance for liquefied natural gas (LNG) shippers in Russian waters.