LONDON--(BUSINESS WIRE)--A.M. Best believes that the total insurance loss of Germanwings Flight 4U 9525, which crashed in the French Alps on March 24, 2015, will comprise passenger liability claims and physical damage to the aircraft, and may put further pressure on the beleaguered aviation war sector.
In a new Best’s Briefing, titled, "A.M. Best Comments on Impact of Germanwings Plane Crash on Aviation Insurance Market," the rating agency notes that passenger liability claims will be covered as part of aviation “all risks” policies and will represent the majority of the overall loss. The level of liability costs are uncertain but will be linked to the nationality, earning potential and family status of the passengers and crew.
There is more certainty around the ultimate cost of physical damage, with the aircraft valued at USD 6.5 million. Early assumptions have indicated that the cause of the crash may be the result of deliberate pilot action. If this is correct, the insurers that underwrote the airline’s hull war policy, rather than its all risks policy, are likely to be liable.
"A.M. Best believes the majority of the loss will be absorbed by the Lloyd’s market, as well as a number of global insurers and reinsurers," said Catherine Thomas, director, analytics. She added: "There was an unusually high incidence of aviation losses in 2014, and this recent loss may put further pressure on the beleaguered aviation war sector. Premium rates for this business did rise in 2014 in response to claims activity. However, the level of increase was disappointing given the magnitude of losses, and upward momentum stalled toward the end of the year."
On the whole, the aviation market has performed well over the past 10 years, with results repeatedly bolstered by substantial reserve releases. The Lloyd’s aviation sector reported a combined ratio of 133% for the 2014 accident year, with the small hull war market disproportionately affected by losses. However, in 2014, positive prior-year development reduced the reported calendar-year combined ratio for Lloyd’s aviation business by 30.5 points.
Yvette Essen, director, industry research, Europe & emerging markets, noted: "Good results have attracted insurers to the sector, and for a number of years, abundant capacity has placed considerable pressure on pricing, as well as terms and conditions, across all aviation lines. At the beginning of 2014, rates were significantly below peak levels."
To access a complimentary copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=235137.
A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
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