Aviation Insurance Barry Moss & Market Aviation Day/06...  AVIATION INSURANCE MARKET TRENDS New entrants

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  • Aviation Insurance

    & Market Update

    Barry Moss

    AVOCET

  • ABOUT AVOCET

    Established 2007 to provide insurance advisory to aircraft

    owners, lessors, managers and export credit guarantors

    Ensure that airlines are compliant with insurance requirements of

    leases etc. and current aviation insurance market practice

    Provide annual insurance compliant checks at policy renewal

    Monitor current aviation insurance trends and developments

  • PRESENTATION CONTENT

    A brief history of aviation insurance

    Risk mitigation

    Aviation insurance trends

    Summary

  • A BRIEF HISTORY OF

    AVIATION INSURANCE

  • "Aviation in itself is not inherently dangerous. But to an even greater degree than the sea, it is terribly unforgiving of any carelessness, incapacity or neglect."

    Captain A.G. Lamplugh, Chief Underwriter, the British Aviation Insurance Company -1931

    HISTORY OF AVIATION INSURANCE

  • 1911 First aviation insurances underwritten in the Lloyds insurance market

    1912 Lloyds temporarily ceased underwriting aviation due to weather related losses at an air display

    Many early aircraft were flying boats. Insurance of aircraft traditionally referred to as Aviation Hull insurance as first insured in the Marine market

    HISTORY OF AVIATION INSURANCE

  • 1914 1918 development of commercial aviation interrupted by the First World War

    1919 far-sighted Lloyds underwriter Cuthbert Heath started the British Aviation Insurance Association

    1927 Heath insures Charles Lindbergs Spirit of St. Louis transatlantic flight for $18,000

    1929 Warsaw convention established terms, conditions and limitations of liability for carriage by air

    HISTORY OF AVIATION INSURANCE

  • 1939 1945 WWII aviation technology advances significantly including invention of radar, aircraft pressurisation and the jet engine

    Post war, the Lockheed Constellation was valued at US$850,000 and the Boeing Stratocruiser at US$1,500,000 more than the value of an entire pre-war fleet

    HISTORY OF AVIATION INSURANCE

  • The arrival of the Jet Age in the 1950s brought significant challenges to the insurance industry including many losses

    Aircraft values rose significantly as each technological advance prompted another jump. The introduction of the B747 in 1968 reached a new peak of US$25,000,000

    HISTORY OF AVIATION INSURANCE

  • The 1970s and 1980s saw a rise in international hi-jacking and terrorism

    9/11 2001 was one of the worst atrocities covered by aviation insurance. The incident restricted insurance cover for many years to come and raised questions about contract certainty

    HISTORY OF AVIATION INSURANCE

  • RISK MITIGATION

  • Flight safety continues to improve. Incidents rather than accidents are now the greatest contributor to loss

    the Airbus A320 family has experienced 0.14 fatal hull-loss accidents for every million take-offs, and 0.24 total hull-loss accidents for every million take-offs

    The risk of loss and liability cannot be totally avoided but it can be managed

    AVIATION RISK PERSPECTIVE

  • AVIATION RISK PERSPECTIVE

    Aircraft owners and investors are reasonably remote from loss

    and liability claims provided they are covered under the operators

    insurances by the Airline Finance/Lease Contract Endorsement

    AVN 67B and other mechanisms

    Due diligence required to ensure that aircraft operators

    insurances are maintained in accordance with lease

    requirements and established market practice

    So what can go wrong?

  • AVIATION INSURANCE

    TRENDS

  • Wide-body aircraft types such as the

    A380 and B777-300ER has required

    the insurance market to cover single

    aircraft values in excess of US$250

    London continues to be the Worlds

    centre of expertise for insuring

    aviation risks

    AVIATION INSURANCE TRENDS

  • Underwriters were also asked

    what risks they feared the most.

    Their greatest fear was war risk

    and acts of terrorism

    AVIATION INSURANCE MARKET TRENDS

    In a recent survey undertaken by the Russell Group, aviation

    underwriters were asked if they agreed that the soft market is the

    biggest challenge facing aviation insurers/reinsurers today

    100% of respondents agreed.

  • AVIATION INSURANCE MARKET TRENDS

    New entrants continue to join the aviation insurance market

    resulting in an over-supply of capacity. This may be

    economically beneficial for airlines in the short term but unlikely

    to be sustainable in the longer term

    The gap between financed amounts and insured values

    continues to widen indication that the book value of many airline

    fleets may be over-insured

    Hull deductibles have eroded in real terms, particularly for older

    aircraft

  • SUMMARY

  • AVIATION INSURANCE MARKET TRENDS

    Not all risks are insurable and insurance policy is a conditional

    document, not a guarantee

    Ultimately the risk of the asset and third party liability is a credit

    risk on the aircraft operator

    Ownership brings responsibility