A “little bit all over the place” on Aviation Insurance

firstTimeOnPlaneI felt sort of  priviledged having experienced underwriting some aviation risks over the last couple of years. So it is a feel good thing for me to pen something about aviation risks…..(by the way, that’s not me!) hopefully getting them in the correct order here! It is good to mention here – Air France disaster compounded by Air Yemeni crash tipped the aviation markets over the edge. “Ambulance-chasersare pushing up liability claims awards to figures nearing those  of US / Canada. Helicopter losses amounted to USD 350 million in the first half of 2009 bringing a half year total aviation losses to USD1.8 billion against an annual projected aviation premium of USD1.2 billion. All these sounds serious BAD!

What are the important ingredients for getting those important underwriting tasks done efficiently? Firstly, international reinsurance brokers (having the necessary presence in the London markets) are important for developing the rates, terms and conditions, and in  completing the necessary overseas reinsurance placement. It is best to work with an experienced foreign broker with enough exposure (I would look for something more than 10 years aviation exposure…. for comfort) as well as the right networking within the London markets. Their claims handling experience is indeed very important, especially most aviation claims are extremely sizeable that run into hundreds of millions USD, especially those concerning third party liability.

While a good capable reinsurance broker is important, the retail broker whom you work with is equally important to ensure a smooth flow of information and striking an optimum level of technical understanding. Unfortunately, we do not have many capable aviation underwriters and broker around town capable of providing the right advice and proficient with the airline and general aviation industry, in order to articulate well with their aviation clients. With the gradual hardening of rates around the world aviation insurance markets, the broking fraternity must do more in order to ensure the customers’ interests are well provided for.

Generally for mid-range aircraft, there are two main types of policy –  (1)Hull, Spares & Third-party liability (usually in combined single limit), and (2) War & Allied perils.

The Placement process – Caution should be exercised as placement at overseas markets require compliance with JPI/GPI 22 – Optimisation of Malaysian local retention and capacity. In Malaysia, we have the Malaysia Aviation Pool (MAP) (Main capacity supplier – Catlin and manage by MNRB)  with some USD25 million capacity follow by Asia Capital Re (M’sia) with a small line value of ~ USD12 million. Since substantial shares ended up overseas, it is best to keep proper records for monitoring of all these foreign reinsurers – you do not want some non-rated foreign companies based in Russia or unknown places taking a share of it. A trusted “A” rated securities (of reinsurers) are inportant for RBC computation of Supervisory CAR. Ensure that the alloted % for placement are completed by the broker, and watch out for those currency exchange rate; you don’t want to miss out a 0.05% of 100% which may leads to unprotected hundred-odd thousand of USD losses to the bottomline. Before I forgot, Scheme Manager of the Malaysian Large & Specialised Risks (LSR) Scheme must be notified and approval granted before the commencement of any market placements.

During placement, it it worth the while to monitor carefully for differential in rates as applied by the various particiapting reinsurers. Normally in the hard markets rates given by reinsurers in Asia are lower than those insisted by Lloyds or the London market facility; although the core slips are the similar. Care must be taken where this differential rates are averaged out to more than 4 decimal points.

Next are the Cover-note’s details – Will not touch on the actual subject of Interests insured. However, it is good to note here that the “Combined Single Limit” mentioned above also provides sub-limit covers for personal injury for non-passengers (AVN60A), medical expenses, cargo/freight/mail legal liability and baggage/personal effects as well. The following clauses and conditions are worth noting:

  1. The security details with the signed line % denoted and all participating reinsurers having stamped their company’s position with a written line %.
  2. Reinsurance Underwriting & Claims Control Clause – AVN41A
  3. Premium Payment Clause – AVN6A
  4. Profit commission on Renewal – AVN88
  5. Jurisdiction – Malaysian courts and laws
  6. Pilots’ information
  7. Subject always to Airworthiness Regulations
  8. Additional Insureds, waivers of subrogation, hold harmless and indemnification agreements, breach of warranty endorsement (AVN28B), lease agreement (AVN67B), loss payees, and cross liability clauses (AVN63)
  9. Cut through clause – basically apply in event the original insurer is insolvent, and the reinsurers shall pay to the person(s) named as loss payee (s) under the original insurance….

It is good to get your reinsurance broker to provide you with a AVN handbook for references.

Having gone through the main details, the underwriters’ checking process would have been completed…. of course we cannot be checking for and on behalf of the retail broker! A point to note, it is not uncommon for the reinsurance broker to request for the underwriter’s policy number(s) during the signing down process – basically is for compliance reason.

Ultimately when the sign down process is completed, the policy must be issued mirroring those of the placement slip (or cover note) so that coverage “gaps” do not exist.

Any comment??

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10 comments for “A “little bit all over the place” on Aviation Insurance

  1. Anonymous
    March 29, 2014 at 23:39

    Now that malaysia has a case in mh370, is mio able to provide some ino on insurance?

    • March 31, 2014 at 08:13

      Dear Anonymous,
      We will try to write something to help quence some of the public curiosities….(hopefully).

  2. February 8, 2011 at 15:59

    Gree with Supu Kupu that we do not have expertise locally in terms of underwriter and broker. Even some of the regional office in Singapore have to refer to London Office for technical advise and pricing.

  3. January 14, 2011 at 16:04

    found your site on del.icio.us today and really liked it.. i bookmarked it and will be back to check it out some more later

  4. bloggie
    May 10, 2010 at 22:48

    There are alot more aviation underwriters now stationing in Singapore, mainly a result of Lloyds’ repositioning themselves in the far east or those London / Australia aviation markets engaging their local entity to compete in this segment. Capacity is now slowly being localised within this part of the region.

    • May 14, 2010 at 22:12

      Yes, capacity is more readily available in this part of the world now. You have Malaysian Aviation Pool jointly with Catlin, Labuan, then you have Chartis, ACR and QBE, thus never short of capacity.

  5. andrewchia.com
    August 4, 2009 at 10:29

    Bro, I got this article that reported the following:
    The hull of Air France aircraft that crashed in the Atlantic is insured for approx USD100m. The liability costs could run as high as USD1b basing on 216 passengers and 12 crew members. Accordingly Jardine Lloyd Thompson was the broker and Axa is the lead insurer. Global Aerospace and XL may have taken a following line.

    In regards to Air Yemeni airliner that crashed in the Indian Ocean with 153 people on board, the following are some facts:
    – It is Airbus 310 – operated by Yemenia Air – flying from Yemeni Capital Sanaa when it crashed near Comoros Islands
    – Lead insurer – Ace with Hull valued at approx. USD34m
    – HSBC is the broker

  6. Supu Kupu
    July 27, 2009 at 11:58

    Wonderful article. Next time, put your own photo that you took when you last visited Vietnam ….. Sitting next to…..

    I would like to add something based on my limited experience on Aviation Insurance.

    “Unfortunately, we do not have many capable aviation underwriters and broker…..” – There are potential underwriters locally and they can be trained. One needs to actually be in Lloyd’s London to have enough exposure to become and Aviation underwriter. Even if we have Malaysian underwriter in Lloyd’s they probably will not come back here anytime soon because there is not much volume business that he/she can underwrite in this country. Our aviation industry is still pretty much small and still more than 80% aviation premium goes back to London.

    The presences of Lloyd’s syndicates in Labuan or Singapore are probably just to take the advantage of tax reduction. They have representatives but not necessarily underwriters. Aviation business that goes to these syndicates will end up being ceded to London.

    Role of Brokers – I agree that brokers play vital role in Aviation insurance. There are basically three leading brokers in this country for Aviation insurance (from my observation) ; Willis, AON and Marsh. These brokers have their own registered office in London so it makes things easier for not having to tie up with another London broker. Unlike other local brokers acting as direct broker to the Insured, they are not licensed to deal direct with Lloyd’s underwriters, thus, need to tie up with a London Lloyd’s registered broker to do the placement.

    Aviation regulation changes and it is so vital that a broker is aware of these changes. For example, Europe may suddenly impose higher liability limit to fly through their zone. The broker must be familiar with the formula and be able to advise the Insured on the additional limit and premium to comply with the revised regulation. Certain DCAs are strict, for example Hong Kong. They refused to accept our certificate of insurance and insist on London’s certificate of reinsurance before they can allow our aircraft to fly to Hong Kong.

  7. July 25, 2009 at 10:49

    Don, you like the guy wearing the seat belt, I think he is funny. looks like our friend!

  8. Donboh
    July 24, 2009 at 22:35

    didn’t know underwriting aviation risks so easy, just get the two brokers to do all the job! He he he!Buta gaji lah!

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