Lloyd’s of London insurers risk suffering losses of up to $10bn if Vladimir Putin follows through on his threat to seize foreign-owned planes.

Russia published a draft law on Thursday allowing it to hold about 500 foreign-owned aircraft hostage.

Western sanctions against the Kremlin have given leasing companies, many of which are based in Ireland, until March 28 to extricate themselves from deals with Russian carriers.

But under proposals drafted by the Russian transport ministry, its airlines will make lease payments in roubles for the rest of the year.

If leasing companies terminate their agreements, a new commission set up by the Kremlin will decide whether the aircraft can be returned or remain in Russia.

The insurance industry has been bracing for jets stranded in Russia to be confiscated by the state since Mr Putin’s forces invaded Ukraine last month.

The airlines and leasing companies have insurance contracts to protect against damage or loss of the aircraft.

Lloyd’s dominates the global aviation insurance market. It takes nearly all of the risk related to aviation insurance alongside reinsurance companies on the Continent.

Insurance brokers have been expecting that policies will be triggered under “Hull War and Allied Perils” clauses, which protect the holder against the fallout from war.

Russian airlines have 980 jets in service, according to analytics firm Cirium. Some 777 of these are leased, two-thirds of which are rented from foreign leasing specialists.

Although the total value of the aircraft under threat is $10bn, the losses are likely to be spread globally as Lloyd’s underwriters offload their risk to specialist reinsurance firms. Lloyd’s did not respond to a request for comment.

However, losses could be significant. Hurricanes Charley, Frances and Ivan in 2004, led to payouts totalling approximately $25bn, of which the share for Lloyd’s was $2.3bn. 

The Piper Alpha disaster in 1988, where a North Sea oil production platform exploded with 226 people on board, cost the City of London insurance market $1.4bn.

Paul Jebely, an asset finance specialist at law firm Withers, said: “It is now increasingly likely that there will be hundreds of millions of dollars, if not billions, in losses written-off by aircraft lessors.

“Insurers, being rational economic actors, are likely to fight tooth and nail for years to resist billions of dollars of potential claims.”