The Foreign Office said on Wednesday that the insurance sanctions would complement similar action against the export of aerospace technology to Russia, as well as a ban that prevents the country's aircraft from landing on U.K. soil.
Businesses in Britain will now be prevented from providing insurance to cover aviation and aerospace equipment to clients in Russia or for goods intended to be used in the country.
"Additional trade measures, also introduced today, will prevent U.K. exports of aviation or space-related items and technology to Russia, including related services such as insurance and reinsurance services," the ministry said on Wednesday. "This means cover is withdrawn on existing policies and U.K. insurers and reinsurers will be unable to pay claims in respect of existing policies in these sectors," the FCO added.
Foreign Secretary Liz Truss said that "banning Russian flagged planes from the U.K. and making it a criminal offense to fly them will inflict more economic pain on Russia and those close to the Kremlin."
Transport Secretary Grant Shapps said the government is taking action "to deny [Russian President Vladimir] Putin and his cronies the right to continue as normal while innocent Ukrainians suffer."
The U.K. ordered on Thursday that the assets of seven of Russia's wealthiest oligarchs be frozen, including Roman Abramovich's Chelsea Football Club, as Britain steps up moves to sanction individuals close to Putin. The sanctioned seven, who also include leading industrialist Oleg Deripaska, and Igor Sechin, chief executive of Russian oil giant Rosneft, will have their collective net worth of £15 billion ($20 billion) frozen and be denied entry to the U.K.
The Foreign Office announcement follows the publication of an official trade license on Tuesday, setting out the sanctions in legal terms and stating that insurers should wrap up any existing affected business by March 28.
The precise wording of the sanctions threatens to cause headaches for insurers because it is not clear whether the ban on claims renders existing contracts void or defers liability until sanctions are lifted. Investment bank Peel Hunt said insurers should hold on to cash reserves if liability is deferred, in case they might need to pay claims at a later date.
The Prudential Regulation Authority declined to comment on Wednesday about the precise nature of the ban on claims. The Bank of England's regulatory arm has previously said that the wording of individual contracts will likely be the deciding factor.
The sanctions will largely affect the Lloyd's of London market, which primarily writes large international commercial insurance business, including aviation contracts.
The BoE said on Tuesday that it had carried out an assessment of the impact of the sanctions and concluded that they would have a "manageable" effect on the London insurance market.
--Editing by Joe Millis.
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