Western reinsurers have largely abandoned the business of war risk cover in Ukrainian and Russian waters, leaving individual insurance companies on their own to accept or reject the risk for these policies. Earlier this month, three Japanese insurance companies – Tokio Marine & Nichido Fire, Sompo Japan and Mitsui Sumitomo – began informing shipowners that effective January 1, they will stop insuring ships for war damage in all Russian waters.
Japan’s government appealed to all three insurance companies to change their minds, citing the national interest in continuity of natural gas supplies. Russia’s Sakhalin Island Complex, partly owned by Gazprom and by Japanese companies, is vital to Japan’s energy security. It accounts for over nine percent of the country’s LNG imports. Without war risk cover, LNG carrier owners would be on their own on an uninsured voyage to Sakhalin – and an uninsured voyage is difficult to finance.
To resolve this issue, Japan’s Financial Services Agency (FSA) and Agency for Natural Resources and Energy issued a rare joint appeal to the nation’s insurance industry association, asking specifically for continued coverage for voyages to and from Sakhalin-2.
“Securing LNG is the top priority for the government, and we asked insurance companies to cooperate in this regard,” an official at the FSA told Reuters.
According to Nikkei, the government has negotiated with the three insurers and has secured a pool of war risk cover totaling about $60 million with reinsurance totaling another $165 million. This is a dramatic reduction from historical capacity, and it may impose a limit on the volume of Japanese insured shipping traffic to and from Russia.
