(Reuters) – Axa XL, a division of French insurer Axa SA, is reducing insurance cover offered to airlines as it seeks to protect the multi-billion dollar amount following major Ukraine-related losses, two insurance and brokerage sources told Reuters.
One of the top 10 players in global aviation insurance, Axa XL is withdrawing from insuring risk for so-called war protection, the sources said, reducing options for airline operators or lessors seeking protection against loss or damage resulting from war.
The retreat of a major player such as Axa XL will make it harder to find this specialist cover, potentially driving up premiums and increasing costs for exporters and travellers.
The company has also begun to reduce some of its exposure to naval defenses, three other industry sources said.
Axa XL declined to comment.
The Axa XL retreat comes as the war in Ukraine approaches its one-year anniversary on February 24 and follows months of massive losses for many of the world̵7;s biggest insurers.
The conflict, which Russia calls a special military operation, is likely to result in insured losses of between $10 billion and $20 billion globally, a report by broker Howden said last month.
Air warfare protection is one of the classes of business most exposed to “the substantial losses that have and will occur,” the report said.
Axa XL competes with other commercial insurers operating at Lloyd’s of London and in the wider London commercial insurance market and with US and Bermuda-based insurers.
The business accounted for 20% of Axa’s group revenue of 55.1 billion euros ($59.55 billion) in the first half of 2022, but just 14% of net profit of $4.1 billion.
The insurer said in its earnings report that the war led to a 1.1 percentage point increase in the current year’s loss ratio in underlying property/casualty revenue, mainly in aviation.
Insurers expect more losses as aircraft leasing companies have taken to the courts to seek insurance payouts, with about $10 billion tied up in more than 400 jets stranded in Russia.
Reinsurers, who insure the insurance companies, are also feeling the pinch. They have declined to provide protection for Russia, Belarus and Ukraine from January 1, brokers say.
The insurers are also replicating reinsurers’ exclusion clauses, meaning Chinese or Middle Eastern airlines flying to Russia will not be insured if they are shot down, one of the sources said. Western airlines cannot get insurance for Russia due to sanctions.
The move has also hit the marine market, another one hit hard by the war in Ukraine.