Fourth club confirms Sovcomflot P&I cancellation

The UK Club has become the fourth protection and indemnity (P&I) club known or believed to have tabled notice to sanctioned Russian tanker giant Sovcomflot that it will shortly cancel liability cover.

The marine mutual joins West of England and North, which cited the need to comply with sanctions imposed on Russia in the wake of its military incursion into Ukraine in February.

Gard, the biggest P&I provider, is declining to comment, although it is understood to have put the company on notice as well.

Of the five clubs that cover Sovcomflot tonnage to any substantial extent, only Skuld officially remains an unknown quantity. But it will almost certainly have complied with any sanctions applicable in Norway, where it is based.

“We can confirm that in order to comply with UK and EU sanctions, the UK Club issued 30-day notices of termination to Sovcomflot in respect of their entered ships in early April,” a spokesperson for UK Club said.

The spate of terminations is likely to prove problematic for Sovcomflot, as P&I insurance is effectively a requirement to trade. Few charterers would accept the risks of fixing a tanker without arrangements in place to meet the cost of a big oil spill.

'We can confirm that in order to comply with UK and EU sanctions, the UK Club issued 30-day notices of termination to Sovcomflot in respect of their entered ships in early April'

^{UK Club}

There have already been reports that some Asian refineries are trying to get out of Sovcomflot stems from Sakhalin booked for late May and June, precisely on the grounds of lack of insurance.

Almost all P&I cover internationally – with the exception of fixed premium facilities aimed at smaller vessels – is provided by the 13 clubs affiliated to the International Group of P&I Clubs.

While it is not known whether the International Group has taken a collective line on covering Sovcomflot, it is unlikely any members would go it alone and take the company on at this stage, especially if they are domiciled in jurisdictions that have imposed sanctions.

Marine insurance sources believe Sovcomflot’s most likely response will be to secure a first line of P&I cover from Ingosstrakh, Russia’s biggest insurer.

Ingosstrakh already has fixed premium exposure on both P&I and hull and machinery for around 2,000 primarily domestic vessels.

The Russian state, which owns the majority of shares in Sovcomflot, would then have to step in for the excess, although it is not clear if such an arrangement would meet the requirements of charterers.

Meanwhile, vessels associated with the National Iranian Tanker Corporation and Petróleos de Venezuela are understood to be back in the market for P&I cover, in the expectation that sanctions on the Iranian and Venezuelan governments will at least be significantly eased.

Sovcomflot has been approached for comment.

This article first appeared in Lloyd's List, a sister publication of Insurance Day