Fate of Malaysia Airlines flight MH370 unknown after disappearing on 8 March.
Rates in the aviation market are unlikely to rise markedly regardless of whether the missing Malaysia Airlines flight MH370 is a total loss.
According to PWC insurance partner Mohammad Khan, an “extremely benign” 2013 means a total loss would not be enough to increase aviation rates. “Last year was a very benign year,” he told Post. “We had reserve releases on both older years and profitable current year business.”
As Post went to press uncertainty surrounded the fate of the plane – which disappeared on 8 March along with its 239 passengers and crewmembers en route from Kuala Lumpur International Airport to Beijing Capital International Airport – with mechanical failure, pilot suicide and terrorism all being pursued as lines of enquiry.
A Credit Suisse report earlier this week put the estimated cost of the total insurance loss of flight MH370 at between $500m (£301m) and $600m, slightly less than the estimated $750m paid out for the Air France Airbus A330, which crashed off the coast of Brazil in 2009.
Commenting on the lines most likely to be affected by the loss, Khan added: “The hull and liability policy covers will obviously be impacted, but there is also going to be a small impact on life and personal accident.
“The liability loss is probably not going to be as high as the hull loss, if it’s a total loss, because the majority of the passengers were not US citizens. The liability payments will be higher for the five passengers that were US citizens than for the rest of the passengers.”
Meanwhile, one aviation expert told Post the hull and liability insurers for the missing aircraft and those on cover for war risks could become involved in a legal battle if the ultimate cause of the plane’s disappearance is not discovered.
Allianz is lead insurer on the Willis-brokered pool for hull and liability cover – which also includes aviation heavyweights Axa and AIG – and Post understands the insurer has already agreed to pay out as the policy includes a missing plane clause. Lloyd’s insurer Atrium Underwriting is the lead for war risks, which would trigger if terrorism were conclusively proven.
A well-placed aviation source told Post it is common for insurers to have to make payments before confirming the cause of loss and then settle the matter between themselves, but there is still the possibility of wrangling. They said:
“Normally what happens is that you don’t know what’s happened until after payments have already been made.
“There will normally be a 50-50 split between your all risks and your war risks, and once the loss has been determined then whichever party should be paying will reimburse the other once the reason for the loss is known.”
The source added that Allianz is in the process of paying out on the hull and liability cover: “Your standard all-risks aviation policy has quite a short period, normally three days, after which it would be deemed a total loss.”
Other insurers affected by the disappearance of the plane include Hannover Re.
A spokeswoman for the German reinsurer told Post it expects a €30m (£25.2m) net burden if the aircraft is lost.
Etiqa Insurance & Takaful, the insurance unit of Malayan Banking, is the local lead, while Kazakh Insurance Company Eurasia and India’s sole reinsurer GIC Re are also on cover, according to reports in the local media.
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