boff & company aviation insurance...
TRANSCRIPT
Boff & Company AVIATION INSURANCE UPDATE Insurance Brokers Ltd
July 30, 2014
A publication of Boff & Co. Insurance Brokers Limited (July 2014). A ll Rights Reserved Page 1
Aviation Hull War Risk Insurance Market May Not Be ‘Soft’ Anymore
The recent war-related air disasters may have brought to a close the soft market that the
aviation hull war insurance market has enjoyed. A hull war risk policy covers the entire value of
the hull for each plane in an airline's fleet. The soft market refers to the period in a market cycle
when written premium is primarily low coupled with the excess capacities by the reinsurers and
insurers plus the influx of other non-traditional insurance players into the market. This period is
markedly characterized by absence of major losses.
Quietness in the market
Events after September 11, 2001 did not raise any major rating actions as this specialized line of
business recorded reasonable profits. It is also a normal practice in the industry for an airline to
inform the insurers when it wants to venture into risky area not primarily covered under the
geographical limit. The go-ahead by the insurers is accompanied with the payment of additional
premium. Hence, the quietness lasted as long as there were no major war –related losses.
Recent happenings may likely jolt the market
Two recent accidents that have put the hull war risk into spotlight were: Malaysia Airlines Flight
370 (Boeing 777) which disappeared on March 8, 2014 on its flight from Kuala Lumpur to
Beijing and Malaysia Airlines Flight MH-17 (Boeing 777) which was shot down by a surface-to-
air missile on July 17, 2014 on its flight from Amsterdam to Kuala Lumpur. The recent war-
related incidents at Karachi and Tripoli airports and the TransAsia ATR-72 plane that crashed on
July 23, 2014 also added to the disturbing headlines. Though the TransAsia incident will be
lodged under aviation hull all risks, the March 8 incident is being considered 50% as a war loss
and 50% hull risks while the July 17 incident is to be declared a war loss.
In the words of Nigel Weyman, Chairman of JLT Aerospace, “The current minuscule level of hull
war rates is the result of a prolonged period in which untoward events did not occur and now
we've had a whole string of them. A lot of questions will be asked in underwriting rooms about
how they're going to deal with war going forward." He added: “The current estimate for the
Boff & Company AVIATION INSURANCE UPDATE Insurance Brokers Ltd
July 30, 2014
A publication of Boff & Co. Insurance Brokers Limited (July 2014). A ll Rights Reserved Page 2
total worldwide hull war risk premiums are put as USD70million. The plane lost on July 17, 2014
was worth USD100million while the earlier Malaysian aircraft that disappeared was probably
worth USD50million to the war market. Besides, we’re still trying to understand the value of the
aircraft destroyed at Tripoli. ”
How the insurers may respond
Aon Risk Solutions wrote in a recent report that: “Each market leader that we have spoken to
has vowed to treat each client individually rather than apply blanket rate increases to all
policies. Contrary to the softer trading environment when rate reductions were given as a
matter of course, going forward clients will need to provide detailed information demonstrating
their risk management and in particular risk mitigation capabilities with a breakdown on
security protocols and route structure for detailed analysis.”
Hull War Risk Insurance in Nigeria Going Forward
Domestic airlines in Nigeria have not suffered any major war-related air crashes since the end
of civil war, however, the heightened political tensions and growing insurgency in the northern
part of the country may influence ratings action of hull war insurance. Nevertheless, the
market is likely to price each client risk individually.
For more information, please contact:
1. Nike Akintunde-Lawal (Head of Special Risks); +2348023260030; [email protected]
2. Shola Ogunniyi (Head of Business Development) ; +2348189809678; s. [email protected]
Additional reading: www.ambest.com; www.aon.com;
http://en.wikipedia.org/wiki/Category:Aviation_accidents_and_incidents_in_Nigeria
Disclaimer: This information contained herein is of general nature only and should not be relied upon as a substitute for appropriate
professional advice. Readers should not rely solely on this information, but should make their own insurance inquiries before making any decisions. Our attempt at maintaining up-to-date information from reliable sources notwithstanding; we accept no responsibility for any errors
or omissions or results of any actions based upon this information.