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AXA reduces aviation war cover after Ukraine losses, sources say

The logo of French Insurer AXA is seen outside a building in Les Sorinieres

By Noor Zainab Hussain, Jonathan Saul and Carolyn Cohn

LONDON (Reuters) - The commercial arm of French insurer AXA is reducing cover offered to aviation companies as it seeks to protect the multibillion-euro business after heavy Ukraine-related losses, two underwriting and broking sources told Reuters.

One of the top 10 players in global aviation insurance, AXA XL is pulling back from underwriting risk on so-called war cover, the sources said, reducing options for airline operators or lessors seeking protection against loss or damage arising from war.

The retreat by a major player such as AXA XL will make it more difficult to find this specialist cover, potentially driving up premiums and increasing costs for exporters and travellers.

The company has also begun to scale back some of its exposure on marine war cover, three other industry sources said.

AXA XL declined to comment.

The AXA XL retreat comes as the war in Ukraine nears its first anniversary on Feb. 24 and follows months of massive losses for many of the world's largest insurers.

The conflict, which Russia calls a special military operation, is likely to result in insured losses between $10 billion and $20 billion globally, a report by broker Howden said last month.

Aviation war cover is one of the classes of business most exposed to "the sizeable losses that have and will transpire", 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 U.S. and Bermuda-based underwriters.

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 only 14% of net income of 4.1 billion.

The insurer said in its earnings statement that the war led to a 1.1 percentage point increase to the current year's loss ratio in property and casualty underlying earnings, mainly in aviation.

Insurers expect more losses as aviation leasing companies have resorted to the courts to seek insurance payments, with about $10 billion tied up in more than 400 jets stranded in Russia.

Reinsurers, which insure the insurers, are feeling the pinch, too. They have declined to provide cover for Russia, Belarus and Ukraine from Jan. 1, brokers say.

Insurers are also replicating reinsurers' exclusion clauses, meaning that 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 obtain insurance for Russia because of sanctions.

The moves have also hit the marine market, another that is heavily exposed to the war in Ukraine.

($1 = 0.9252 euros)

(Reporting by Noor Zainab Hussain in Bengaluru and Jonathan Saul and Carolyn Cohn in London; Editing by Sinead Cruise and David Goodman)