The Aviation Insurance Market

Presented By

Mr.Vijay Thakur

ContentsAirline Hull All Risks and LiabilityMarket CapacityAirline Hull Deductible MarketAVN52E and Excess Third Party War RisksHull War Risks CoverSummary

Airline Insurance Industry Cycle:Airline Hull/Liability Premiums 1982-2009

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

US

$ B

illio

ns

Premium

Linear Trend

Hard

Soft

Har

d

Soft

Soft

Hard

Har

d

World Airline Premium and Claims 2000-2010

0.0

1.0

2.0

3.0

4.0

5.0

6.0

00 01 02 03 04 05 06 07 08 09 2010

US

$ B

illio

ns

PremiumClaimsAverage 10 Year PremiumAverage 10 Year Claims

Average Premium2002-2009 $2.32bn

Average Claims2002-2009 $1.41bn

Maximum Limit Progression 1985-2008

Hull Limit

0

50

100

150

200

250

300

350

1985 1990 1995 2000 2009

US

$ M

illio

ns

Liability Limit

0

500

1,000

1,500

2,000

2,500

1985 1990 1995 2000 2009

US

$ M

illio

ns

2009 Airline Premium & Rate Movements

Period Renewals AFV PaxHull

RatesLiab

RatesExpiring

Prem (US$m)Renewal Prem

(US$m)Premium

Movement

1Q09 13 50% 2% -4% -1% $29.74 $42.02 41%

2Q09 49 1% -4% 8% 13% $191.59 $214.81 12%

3Q09 52 2% -11% 27% 42% $246.98 $297.03 20%

October 18 25% 4% 23% 26% $96.03 $125.82 31%

November 23 4% -1% 5% 14% $169.81 $204.46 20%

December 63 2% 0% 10% 14% $872.54 $1,036.00 19%

4Q09 104 3% 0% 13% 16% $1,138.39 $1,366.28 20%

Annual Average/Total

218 3% -2% 15% 20% $1,606.70 $1,920.14 20%

The figures shown in the table below represent those of Airlines that have renewed in 2009 only.

2010 Airline Premium & Rate Movements

Period Renewals AFV PaxHull

RatesLiab

RatesExpiring

Prem (US$m)Renewal Prem

(US$m)Premium

Movement

1Q10 11 7% 3% 7% 9% $39.68 $44.80 13%

April 18 2% 10% -7% 2% $102.93 $110.47 7%

May 19 11% 15% -10% -8% $75.05 $77.22 3%

June 9 1% 6% -2% 2% $31.67 $37.43 18%

2Q10 46 5% 12% -7% -2% $209.65 $225.12 7%

July 16 12% 9% -16% -10% $154.24 $154.29 0%

Annual Average/Total

73 7% 11% -7% -2% $403.57 $424.21 5%

The figures shown in the table below represent airlines placements renewing in 2010 only.

LossesAwards and minor claim levels are constantly

increasing Recent passenger liability awards have been influenced by US

lawyers and jurisdiction This has meant awards exceeding US$1m per passenger in

countries where they would have previously been substantially less

Increases in minor losses are also having a significant impact on underwriters bottom line

2009/10 Airline Losses:Nett Hull losses in Excess of US$10m Shown

Total Hull/Liability Losses 2009 (including minor losses) – US$2.343bn2010 (including minor losses) – US$0.733bn

US Airways($40m)

Colgan Air($19m)

THY ($47m)

Lion Air($28m)

FedEx

Royal Air Maroc($10m)

Air France($93m)

Yemenia($34m)

Bangkok Airways($15m)

Air India($17m & $50m)

Saudi Arabian($19m & $14.3)

Emirates($19m)

Kingfisher($18m)

Avient($67m)

American Airlines($28m)

EthiopianAirlines($39m)

2009 Losses2010 Losses

Afriqiyah Airways($123m)

Satena($18m)

Five Year Premium and Claims by Region(based

on declared figures for 2009 renewals)

5yr CreditBalance

+US$184m

5yr CreditBalance

+US$117m

5yr CreditBalance

-US$267m

5yr CreditBalance

+US$1,701m

5yr CreditBalance

+US$821m

5yr Credit Balance

-US$404m

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Africa Middle East Europe Asia Pacific North America Latin America

US

$ B

illio

ns

Five Year Premiums

Five Year Claims

Five year Loss Ratios by Region(based on declared figures for 2009 renewals)

Loss Ratio54.71%

Loss Ratio76.23%

Loss Ratio110.87%

Loss Ratio34.67%

Loss Ratio70.22%

Loss Ratio189.09%

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

Africa Middle East Europe Asia Pacific North America Latin America

Loss

Rat

io %

Airline Capacity to Accept Airline Risk:

Non-US Airline with a US$1.5 Billion Limit

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%AA 19.50%

AA- 27.00%

A+ 86.50%

A 7.30%

A- 26.60%

BBB 0.50%

BBB- 2.50%

Other 17.15%

Total 187.05%

Munich Re (10%)GAUM (7.5%)Inter Hannover (5%)Partner Re. (3.5%)Generali (1%)

Aspen (3.3%)Inter Aero (2.5%)SCOR (1.5%) LRA (13%)

Asia Capital (5%)KRIC (2%)Maxs Re (4%)Sirius (1.5%)Aviabel (1%)ADNIC (0.1%)

GIC, Ironshore (5%)Glacier Re (3%)MISR (1.25%)PICC, New India (1%)Oriental, (0.75%)Nissay (0.15%

It should be noted that underwriters are unlikely to participate up to their maximum capacity. The actual available capacity is dependant on

a number of variables and underwriters desire to participate on any particular risk.

Chartis (12.5%)Ace, Catlin, Swiss Re (10%)Mitsui (6%)Amlin, Starr, Talbot, XL (5%)QBE (4%)Faraday, (3%)Antares, St Paul (2.5%)Atrium (2%)Kiln, Samsung (1.5%)Axis (1%)

Allianz (10%)AXA (8%)Tokio (1.5%)

SCR (0.50%)

Oman (2.5%)

Aviation Hull Deductible Market

Talbot and Kiln have recently entered the deductible market

Rating is reasonably stable Very loss active (large number of claims but

restricted limits) Marginally profitable area to some

underwriters All markets write 100% of any individual risk

St Paul HCC

Secondary Markets

Principal Markets

ACE AspenChartis Allianz Kiln Talbot Travelers XLInsurance

Excess AVN52: Third Party LiabilityPremiums are now at their lowest level since the

introduction of this cover and reductions are now minimalPremium levels are significantly short of the maximum

insured limits Limits of US$1 billion or more being covered for an estimated

total market premium of around US$200 million in 2009The Excess AVN52 market has yet to suffer an insurable

lossThe market created in the wake of 9/11 has had the largest

percentage fall in premium levels since the highs of 2002 An influx of capacity and competition has driven premiums

down from US$1.5 billion in 2002Some hull and liability underwriters are evidencing appetite

to increase sub-limits to US$250m

Excess AVN52: Third Party Liability

An influx of capacity and competition has driven premiums down from US$1.5 billion in 2002 to US$120 million in 2008

The trend for premium reductions continued during 2009Premiums are now at their lowest level since the

introduction of this cover and reductions are minimal

Excess AVN52E Capacity: Based on US$850m excess US$150m

0%

20%

40%

60%

80%

100%

120%

140%

160%AA 10.00%

AA- 10.00%

A+ 123.60%

A 2.50%

A- 2.00%

Other 15.00%

Total 163.10%

Allianz (10%)

Inter Hannover (10%)

Aspen (2.5%)Liberty Mutual (2%)

Ironshore (10%)Glacier (5%)

It should be noted that underwriters are unlikely to participate up to their maximum capacity. The actual available capacity is dependant on

a number of variables and underwriters desire to participate on any particular risk.

Axis (30%)Chartis (25%)Swiss Re (20%)Catlin, Starr (10%)Brit (3%)Antares (2.5%)Aegis, Amlin, Liberty (2%)ARK (1.75%)Atrium, Faraday, Hiscox, Pritchard, Markel, Talbot, XL (1.5%)St Paul (1.25%)ACE, Hardy, Watkin (1%)Kiln (0.6%)

2009

Plus Berkshire Hathaway (AAA) capable of writing US$1,000m

Aviation underwriting-ReinsuranceUnderwriting factorsDebit credit balanceGovernment policiesDgcaAirworthinessCVC Flight data digital recorderPublic knowledge of all losses

September 11 Crash

Mangalore crash

Hudson Crash