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Aviation Insurance & Market Update Barry Moss AVOCET

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Aviation Insurance

& Market Update

Barry Moss

AVOCET

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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

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PRESENTATION CONTENT

A brief history of aviation insurance

Risk mitigation

Aviation insurance trends

Summary

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A BRIEF HISTORY OF

AVIATION INSURANCE

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"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

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1911 First aviation insurances underwritten in the Lloyd’s insurance market

1912 Lloyd’s 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

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

1919 far-sighted Lloyd’s underwriter Cuthbert Heath started the British Aviation Insurance Association

1927 Heath insures Charles Lindberg’s ‘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

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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

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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

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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

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RISK MITIGATION

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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

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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?

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AVIATION INSURANCE

TRENDS

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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 World’s

centre of expertise for insuring

aviation risks

AVIATION INSURANCE TRENDS

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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.

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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

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SUMMARY

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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