London can absorb worst case $10bn price tag on Russian aircraft losses with no hit to capital

London's top aviation insurers should survive mass Russian expropriation of aircraft with only a big hit to earnings, but no dent to capital, although exceptions could arise among specialty insurers where aviation concentrations are higher, the  Fitch Ratings agency has said.

"Even in a [worst case] scenario, we believe most insurers and reinsurers would suffer only a hit to earnings, rather than capital depletion, and we would not expect material ratings implications," Fitch said.

Select cases of high aviation concentration possibly combined with other large loss experience could create "rare exceptions" with "modest capital depletion," Fitch warned.

"Some Lloyd’s underwriters are likely to suffer above-average losses, which would make their credit profiles more vulnerable to further large losses or external shocks," Fitch analysts wrote.

Those higher concentrations of coverage amongst specialty insurers suggest that comparisons to natural catastrophe or pandemic impact could be misleading. $30 billion in non-life pandemic claims or $100 billion in 2021 nat cat claims went smoothly when diluted through the broader system.

The industry likely has some 30-40% of its aviation exposure ceded to reinsurers, Fitch estimates.

The worst-case scenario for the expropriation of the $13 billion worth of over 500 aircraft is a $10 billion price tag, Fitch says. After best-guess aggregate limits, a $5-6 billion price tag is considered more "realistic."

The likelihood of legal disputes adds a separate heavy layer of uncertainty over estimates, Fitch noted.

The long-term upshot to will likely be "the largest annual claims in the history of aviation insurance" could be a longer-period of increasing premiums, added exclusion clauses and exposure reductions, Fitch warned.

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