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Japan insurers to maintain cover for LNG vessels in Russian waters
Global Banking & Finance Review®
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By Ritsuko Shimizu and Yuka Obayashi
TOKYO (Reuters) – Japanese insurers are expected to maintain marine war insurance, which covers the sinking and requisition of ships due to war in Russian waters for at least three months for liquefied natural gas (LNG) vessels, industry sources said on Friday.
Japan’s Tokio Marine & Nichido Fire Insurance, Sompo Japan Insurance and Mitsui Sumitomo Insurance told shipowners last Friday that from Jan. 1 they would stop offering insurance coverage for ship damage caused by war in Russian waters, because reinsurers were withdrawing coverage.
But on Tuesday, a senior official at the industry ministry said the Japanese government had asked insurers to take on additional risks to continue providing war insurance for liquefied natural gas (LNG) shippers.
This was to ensure Japan will be able to import the fuel from the Sakhalin-2 gas and oil project in Russia’s Far East at the height of peak winter demand.
The insurance companies negotiated with reinsurers to replace part of the coverage and they are expected to enable continued insurance, Nikkei reported on Thursday.
After renegotiating with UK reinsurers, a total of 30 billion yen ($224 million) is expected to be secured, with domestic insurers covering about 8 billion yen and overseas reinsurers taking on about 22 billion yen, it said.
But added the underwriting capacity will be less than half of the previous 67 billion yen.
Therefore, the number of ships that can be compensated at any one time is likely to be about half of what it used to be, which means shipping companies may need to review their operations, the Nikkei said.
The industry sources on Friday confirmed the Nikkei report and told Reuters the cover would last until March.
($1 = 133.6900 yen)
(Reporting by Yuka Obayashi and Ritsuko Shimizu; Editing by Emelia Sithole-Matarise and Barbara Lewis)
Liquefied natural gas (LNG) is natural gas that has been cooled to a liquid state, making it easier to store and transport. It is primarily used for energy generation and heating.
Reinsurance is insurance that is purchased by an insurance company from another insurance company to mitigate risk. It allows insurers to protect themselves from large losses.
Underwriting capacity refers to the maximum amount of risk that an insurer is willing to accept. It determines how much insurance coverage can be provided to clients.
Risk management involves identifying, assessing, and prioritizing risks followed by coordinated efforts to minimize, monitor, and control the probability or impact of unfortunate events.
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