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16 July 2019Insurance

AJG: Ethiopian Airlines / Boeing crash to cost insurers over $1bn

The Ethiopian Airlines crash on the 10 March 2019, and the subsequent worldwide grounding of the Boeing 737 Max fleet, “could cost aviation insurers over $1bn combined”, the broker AJ Gallagher has estimated.

Loss activity in the sector, more broadly, was significant in Q2 as insurers “suffered further high-profile and expensive losses, across the airline, aerospace and general aviation sectors”, the broker said.

Aviation insurers remain concerned that “despite upwards rating movement, 2019 is poised to become yet another loss making year”, AJG said in its aviation insurance market update, Plane Talking.

The broker highlighted the Aeroflot Sukhoi Superjet 100 crash in May 2019, which caught fire while landing at Moscow’s Sheremetyevo International Airport, killing 41 people. Thirty-seven passengers survived. “The cause of the crash, the second fatal accident involving the Superjet since it went into service, has not yet been established, but the hull and liability claim is likely to be substantial,” it said.

The broker also pointed to the Biman Bangladesh Dash 8 Q400 ‘hard landing’ in Myanmar, on 8 May 2019, and the Miami Air International Boeing 737-800, which skidded off the runway into a Florida river on 4 May 2019. It said both incidents “must be considered remarkably close calls, given the extent of damage each aircraft sustained and the fact that together they were carrying over 170 passengers and crew”.

However, major claims are “only one element” of overall loss as smaller and more frequent ‘attritional’ claims work against the rise in premium, subduing income.

Pointing to the impact of attritional losses, AJG said: “The smaller partial and attritional claims remain ever frequent and we continue to see overruns, bumps and scrapes that regularly lead to significant repair claims and costly constructive total losses. Together these everyday events account for a significant portion of the annual market claims figure and as such remain the key area of concern amongst aviation insurers.”

It said that other sectors of the aviation industry “also continue to experience losses and add pressure on underwriters”. Incidents include the crash of a corporate jet in Mexico in which 11 passengers died, a mid-air collision of two floatplanes in Alaska which killed six people, the crash of a light aircraft in Brazil, killing all three people onboard, among them a Brazilian popstar, and a jet that was destroyed after hitting a hangar during takeoff, resulting in ten fatalities and third party damages. “While it is too early to suggest reserves for these losses, it is estimated that they will produce some substantial hull and liability insurance claims.”

Insurers are still estimating the cost of earthquake damage at Clark International Airport in the Philippines, while the ongoing grounding of the Boeing 737 Max fleet “could end up being the largest ever non-war claim the aviation market has incurred”.

The broker concluded: “Coming against the backdrop of a bad year in 2018, and a poor first quarter, these recent losses will continue to spur underwriters to remain disciplined as the year progresses. The market is finely balanced and further major losses in the coming months could lead underwriters to react more strongly.”

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