This is interesting….(from the Insurance Insider News)
The cost of Malaysia Airlines’ all-risk insurance policy has trebled after the carrier handed losses of up to $780mn to aviation insurers this year, The Insurance Insider can reveal.
Multiple sources said that the premium will rise from $12mn to $36mn, with the cash premiums rising by 100 percent to $24mn and carriers that remain on the programme set to receive another $12mn by way of a loss additional premium. It is understood that the exposure in the programme has also fallen substantially as passenger numbers slumped in the wake of the PR disaster that followed the losses of flights MH370 and MH17. One source said that he believed the exposure was down 13 percent.
This would suggest a risk-adjusted rate rise of almost 250 percent as the state-owned airline begins the process of "paying back" the aviation insurance market for the losses.
The contract renews at 1 December.
The $36mn premium pot makes Malaysia Airlines comfortably one of the 20 biggest programmes in the market by price.
It is understood that Allianz still leads the programme, with the panel believed to be largely stable as the airline and broker Willis look to reward the incumbent markets for promptly paying the claims. Other carriers with significant gross lines include La Réunion Aérienne, AIG, CV Starr, Catlin and Ace.
The loss reserve resulting from the crash involving Malaysia Airlines flight MH370 in March currently sits at $480mn, with $380mn allocated to the liability portion of the claim and the $100mn hull claim split 50:50 between the all-risk insurers and the war policy led by Lloyd’s insurer Atrium. As previously revealed, the loss reserve for MH17 – which was shot down over Ukraine in July – has been set at $297mn. The war insurers will pay out $97mn for the hull of the downed plane, with up to $200mn set aside for the liability portion of the claim.
Crucially, the liability reserve number does not represent the full sum that will be paid out to families as it includes a large sum to pay for legal fees and loss adjusting expenses, as well as a buffer above the expected total payout.
It is widely understood in the market that Malaysia Airlines will never be able to fully pay back the loss to the market, given that it would take almost 20 years to cover the all-risk loss even disregarding the attritional losses and expenses that the account is sure to have to borne.
There had been an expectation that the 2014 loss record – which has also included sizeable losses from Air Algerie and TransAsia – would see fast-falling rates give way to major rate increases.
However, the market’s rally has been strangled at birth by excess capital and market indiscipline.
Allianz declined to comment. Willis did not respond to a request for comment.