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 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
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
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 World’s
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