State-controlled Russian National Reinsurance Company (RNRC) is now the main reinsurer of Russian ships, including Sovcomflot’s fleet, after Western insurance firms withdrew cover for Russian shipowners, three people familiar with the matter told Reuters.
Insurance is essential for maritime transport, particularly oil cargoes that require the highest safety standards due to the risk of spills and shipping flammable material on the high seas.
Before Western sanctions were imposed on Russia over its invasion of Ukraine, which Moscow calls a “special military operation”, insuring such cargoes relied on reinsurance from an international pool of companies offering broad coverage.
Western insurers withdrew cover from state-run Sovcomflot (SCF) when Russia’s biggest shipping group was hit by sanctions, but Western insurance sources said the Russian replacement cover would likely be enough to keep Russian vessels sailing.
Russian Security Council Deputy Chairman Dmitry Medvedev said this week that state guarantees would be offered as insurance for moving Russian goods, without giving details.
The sources, who declined to be identified due to the sensitivity of the issue, said Russian central bank-controlled RNRC was now the main company providing state guarantees to Russian insurance firms that offered cover such as Ingosstrakh, which insures Russian tankers, including SCF’s fleet. RNRC, Ingosstrakh and Sovcomflot did not respond to Reuters requests for comments.
Russia’s central bank said in March it had raised RNRC’s capitalisation to 300 billion roubles from 71 billion roubles and hiked its guaranteed capital to 750 billion roubles so the firm had adequate resources to provide reinsurance. “The increase in RNRC authorised capital will give Russian insurers wider opportunities to reinsure risks inside Russia, build additional reinsurance capacities, and manage new sanctions risk,” it said in a report.
Ships are commercially required to have protection and indemnity (P&I) insurance, which covers third-party liability claims including environmental damage and injury. Separate hull and machinery policies cover vessels against physical damage.
According to Ingosstrakh’s website, the company offers P&I reinsurance of up to $1 billion. An equal amount was guaranteed by Japan and India for Iranian shipments made in 2012, a period when Iran was under Western sanctions and shut out of the global insurance market.
Western reinsurers typically have higher capital allocations with allotments for different types of cover such as marine insurance, which provides the full range of protection for ships, Western insurance sources said.
“I imagine this capital (of RNRC) is not purely marine and so could be burned through really quickly,” one Western insurance industry source said.
The reinsurance pooling programme of the International Group of P&I insurers, which cover P&I insurance for about 90% of ocean going ships, is capped at a maximum of $3.1 billion for each incident.
Two tanker market sources said RNRC’s capitalisation would allow it to act as a reinsurer for Russian ships on the international market without involving Western companies. One source said similar insurance guarantees were provided by the Iranian authorities when Western insurance companies were unable to insure tankers with Iranian oil amid sanctions.
Russian guarantees were likely to satisfy countries still buying Russian oil, another of the Western insurance industry sources said, after the United States banned Russian oil imports and the European Union agreed to gradually introduce a ban.—Reuters