On NATO's eastern flank, public guarantees unlock war-risk capacity

Noise and signal

The headline is that a new insurance market is emerging on NATO's eastern flank. Bloomberg reported on 5 November that Lietuvos Draudimas, Lithuania's largest insurer, has signed war-cover contracts with more than 100 businesses since May. In Estonia, Seesam's household customers for such cover in September were three times the August figure; the extra premium for a home can be as low as €10 a year.

The signal lies not in price but in where the capacity comes from. International reinsurers that withdrew from the region after 2022 returned only with backing from the EBRD and the US International Development Finance Corporation (DFC). The market standard required insured assets to sit at least 100 km from the front line; the EBRD managed to halve that distance.

Standard policies leave war out

The reason a separate market is forming is legal. In July the High Court in London rejected Nord Stream AG's €580 million claim against insurers led by Lloyd's Insurance Company and Arch. The court examined four possible perpetrators one by one and ruled that war was a proximate cause in every scenario; it saw no need to identify who was responsible.

The ruling strengthens the war exclusion in every property policy that carries indirect-causation wording. The Latvian Insurers Association wrote on 25 May that damage from military drones is generally not covered by standard policies. It added that extra cover is assessed case by case, remains limited and is markedly more expensive than the standard premium.

Demand is flowing into that gap. Sunly has insured solar parks in Estonia, Latvia, Lithuania and Poland, valued at €600 million in total, against war spillover. In October Telia secured cover of up to €50 million for its infrastructure, including data centres in Lithuania. According to Sunly, several large banks now require terrorism and sabotage cover as a standard condition.

Public balance sheets open the capacity

Ukraine shows in hard numbers how a guarantee multiplies capacity. On 13 October the EBRD raised the Aon-managed guarantee facility from €110 million to €150 million because the original amount had been fully used. That guarantee enabled MS Amlin to write more than €500 million of cover across roughly 10,000 policies.

The multiplier is at least 4.5: every €1 of the exhausted €110 million guarantee supported more than €4 of private cover. Premiums have so far exceeded claims and the reinsurer has never called on the guarantee. Profitable business still does not get written without it, because reinsurers price not the average loss but the tail loss that can accumulate in a single night.

Poland's export credit agency KUKE works on the same logic. In April 2025 the European Commission approved a €1.5 billion state-backed reinsurance scheme for transport within Ukraine; KUKE takes 80% of the war risk and the scheme ends on 30 June 2027. That approval dates from 2025; the scheme's current utilisation could not be verified.

Why rates keep private capital away

US Treasury data show the 3-month bill yielding 4.19% on 6 November and the 10-year 4.86%. That yield pays capital deployed into modellable catastrophe risk a risk-free base coupon. According to figures cited by Howden Re on 2 November, only 11% of insurance-linked transactions cover non-catastrophe risk.

The war line's results do not attract that capital. Marsh Re puts war, terrorism and political violence losses stemming from the Middle East at more than $2 billion; the class writes about $2.5 billion of gross premium a year and is posting its first loss since 2001. Howden Re estimates the same losses could exceed $3 billion.

In March WTW put pre-conflict war capacity at about $3.5 billion and terrorism capacity at $5 billion. Capacity shrank markedly only in the Middle East and North Africa. WTW warned that a scenario of geographic spread would bring orders to stop writing new risk; Baltic demand is growing right at the edge of that scenario.

In the Black Sea the threshold reaches freight

The Black Sea shows how the cover threshold feeds into freight. In September the London market's Joint War Committee extended the listed high-risk area to the entire Black Sea, excluding the territorial waters of Türkiye, Bulgaria, Romania and Georgia. Türkiye Today reported on 14 October that the area had grown about 2.4 times to 411,200 km².

According to the same report, war premium quotes rose to 0.6–1% of hull value, from 0.2–0.5% a week earlier. On a 5,000-tonne vessel worth $1.5 million, a 0.5% premium works out at $1.5 per tonne and a 1% premium at $3. The Istanbul–Constanța coastal route adds about $20,000 in extra cost, and one broker says roughly 90% of the transit fleet uses it.

The spread between sources is wide. In the same report an unnamed shipping source said insurance costs had risen from 1.5% to 6% in three months and freight from $30 to $100 per tonne. That figure is far above other quotes and could not be verified. According to RBC, Russian insurers in August effectively withdrew war cover for cargo ships in the Sea of Azov and the Black Sea.

What would disprove this

Three developments would undermine the thesis. If 1 January 2027 broker reports show political violence pricing down by more than 10% and new consortium capacity without public guarantees is announced for the Baltics, the reading that capacity depends on guarantees collapses. If the Black Sea war premium drops below 0.25% of hull value by the end of December, the freight chain weakens.

The third test lies on the rates side. If the 3-month bill falls below 3.5% and the share of non-catastrophe risk in insurance-linked transactions rises clearly above 11%, the claim that interest rates keep private capital out of the war line loses force.