Ukraine reaches deal with insurers for grain shipments

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Ukraine has reached a deal with global insurers to provide affordable cover to ships carrying grain and other critical food supplies from its Black Sea ports, even as its war with Russia wages on.

The new public-private partnership was announced on Wednesday by Kyiv and insurance broking giant Marsh McLennan, after talks revealed by the Financial Times in August.

It will offer up to $50mn each of hull and liability insurance from Lloyd’s of London firms for ships carrying agricultural commodities, providing so-called war risk cover in case of losses coming from the conflict.

Since Russia withdrew from a UN-brokered grain deal in July, a limited number of ships have sailed through an alternative corridor along Ukraine’s Black Sea coast under the protection of Ukrainian coastal air defence systems. President Volodymyr Zelenskyy said on Tuesday that 4mn metric tonnes had been exported through that corridor.

But affordable insurance, given security concerns, has been a major barrier to increasing this flow. A Russian missile damaged the superstructure of a cargo ship entering Odesa’s Pivdennyi seaport on November 8, killing a harbour pilot and injuring three of the crew. The vessel was docking to collect iron ore for steel giant ArcelorMittal.

Ukraine’s Prime Minister Denys Shmyhal said the insurance facility would allow Kyiv to “provide vital food supplies to the world at the same time as supporting the Ukrainian economy and keeping the Black Sea open for international trade”.

Lloyd’s of London chief executive John Neal welcomed the deal which he said would “ensure the safe transport of Ukrainian grain and agricultural products out of the Black Sea and help alleviate global food insecurity”.

The creation of the scheme comes against a difficult backdrop of increasing geopolitical risk, including in the Middle East, that has prompted war risk insurers to reduce their exposure to escalating conflicts.

“You are asking insurers to take on risks that at the moment they are charging an awful lot of money for, and we’re asking them to do it for less because of the support that the Ukrainians are [providing],” said Marcus Baker, global head of marine, cargo and logistics at Marsh. “People are running away from risk, and I think there is an opportunity for us to do so much more.”

As previously reported, the risk is to be shared between insurers and Kyiv, with the state bearing the first portion of any claims up to an undisclosed level. The collateral for this, Marsh said on Wednesday, will be provided in the form of letters of credit from state banks Ukreximbank and Ukrgasbank. German lender DZ Bank will act as a middleman, confirming the collateral for foreign insurers.

Kyiv is separately seeking to encourage international insurers to issue significant amounts of insurance for activities and investments to aid Ukraine’s reconstruction, which it is estimated will cost $411bn.

Last month, the UK signed a statement of intent to support a war-risk insurance scheme being developed by the European Bank for Reconstruction and Development, intended to help British businesses working on reconstruction.

But insurers have been reluctant to offer significant amounts of insurance to Kyiv for such work without some kind of western guarantee, given the ongoing conflict.