Reinsurers can expect largely neutral language from a recent London court ruling in favour of aircraft lessors, according to a new report from Fitch Ratings.

The ruling allowed for recoveries under the war risk insurance policy for stranded planes following Russia’s invasion of Ukraine.

Fitch further stated that ongoing geopolitical uncertainty, including the Iran-Israel conflict, could lead to increased reinsurance costs. It could also mean further reductions in capacity, resulting in insurers further cutting their exposure.

“In addition, we do not expect a further significant increase in premiums due to the ruling itself as the hull war market has been incorporating large rate increases since 2022,” Fitch said.

The credit ratings agency said the ruling underscored the need for greater transparency in contract language and will also likely result in changes in policy wording to tighten exclusions around war risk coverage.

More than 400 planes that were financed or owned by non-Russian lessors were stranded in Russia in 2022 due to sanctions triggered by Russia’s invasion of Ukraine. The lessors had hull and liability insurance with specific aviation war coverage. The court ruling indicated that the insurance contracts met the ordinary broad meaning of war risk language.

Most aviation policies are underwritten through the Lloyd’s of London market. Fitch estimated that 30 per cent to 40 per cent of primary insurers’ exposure was ceded to reinsurers. Aside from Lloyds, other insurer defendants included Chubb, AIG, Fidelis and Swiss Re.

Final resolution has yet to be determined in related cases under way in other jurisdictions, including the United States and Ireland.

Global aircraft lessors are pursuing all avenues to recover amounts written off, including appeal. Lessors have already settled directly with airlines and with the Russian insurance fund for approximately $2.7 billion for over a quarter of the approximately 400 stranded aircraft.

Fitch said given its detailed guidance, the settlement in favour of the lessors should provide legal precedent for additional restitution from insurers in other jurisdictions.

The ruling follows several confidential settlements in Ireland in March that collectively resolved claims totaling $2.9 billion for over 88 aircraft.

The utilisation of proceeds by aircraft lessors will be issuer-specific, including deleveraging, share repurchases and/or dividends, or investment in aircraft.

Aircraft lessors fully wrote down the value of aircraft remaining in Russia, and thus far have recovered nearly all the $7.2 billion initially written off by Fitch-rated lessors in 2022 from various settlements.

“We expect portfolio growth for scaled aircraft lessors in the current environment to be relatively muted, given the competitive dynamics of the secondary and sale and leaseback markets, and lack of available deliveries over the next few years given production delays,” Fitch said.