The High Court of Justice in London recently ruled in favour of aircraft lessors for the 2021 and 2022 underwriting years, a development that carries significant credit implications for insurers and reinsurers, according to analysts at Morningstar DBRS.
The court decision addresses war risk insurance claims for aircraft and engines stranded in Russia since early 2022, and although it applies only to selected test cases, it sets a precedent that broadens the interpretation of “seizure” and “confiscation.”
This could result in additional validated claims and expose insurers and reinsurers to cumulative liabilities amounting to several bn $ (see Worst Aviation Accident Statistics).
The court has granted the defendants leave to appeal, but the initial judgement already impacts market interpretations of war risk clauses and the insurability of politically motivated asset seizures.
Morningstar DBRS analysts note that the ruling supports six lessors with active claims, potentially strengthening their positions in related litigation in other jurisdictions.
The judgement is expected to increase reserve requirements. Many insurers had delayed finalising technical provisions for these stranded aircraft, awaiting legal clarity.
The court’s broad interpretation now forces war risk and all risks insurers to reassess exposures. Lloyd’s syndicates and other carriers with high exposure but limited reserve capacity may face solvency pressure.
Beyond immediate reserve increases, there is a risk of adverse reserve development. Carriers that underestimated exposure or relied on denial strategies may now need to address significant reserve shortfalls.
Reinsurance layers will also be affected, as insurers move to cede losses. However, reinsurance recoveries could be delayed or disputed due to inconsistencies in policy terms or contested coverage triggers.
Retrocessionaires may reassess their exposure, leading to potential disputes over aggregation.
The ruling highlights the consequences for insurers who denied claims without clear policy terms or failed to negotiate in good faith.
This may damage their reputations and affect future underwriting relationships with aviation clients.
Morningstar DBRS expects future policies to include stricter definitions and exclusions related to political and sovereign risks, along with higher premiums for war-related coverage.
Some insurers may consider withdrawing from the contingent war risk market for leased aircraft or limiting geographic exposure.
Rising claims and capacity constraints could drive pricing higher and reduce the availability of coverage. Although this ruling was issued in England, it is likely to influence courts in other common law jurisdictions, giving lessors more leverage in parallel disputes.
On the corporate side, larger aircraft lessors may allocate judgement proceeds to shareholder distributions rather than debt repayment, especially since year-end 2024 balance sheet leverage reached its lowest point in five years.
This reduction stemmed in part from lower funding needs caused by delivery delays from aircraft manufacturers.
Lessors without pending orders may redirect proceeds toward secondary market aircraft acquisitions to support growth.
Morningstar DBRS concludes that the ruling reshapes the Russia-related aviation insurance litigation by affirming the enforceability of lessor policies and a broad interpretation of war risk.
The judgement presents potential downside risk for aviation re/insurers and reinforces the need for improved reserving strategies, clearer policy terms, and stronger risk management practices.
