Aviation - Insurance Convention 1995 General by benbenzhou

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									                        1995 General
                        Insurance Convention




AviationWorking Party
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     Hge
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Victoria
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 otns
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.          o Bsns
            f uie
     Description s
           and a k t
             the
     l history m r e
           og iain
            ra
     l marketnstos
          rtn
           aig
     l recent
l         rss
           ik
     Different
       ilns
     lArie
       rdcs
     lPout
            andeulig
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     l Airportsfeln
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     lStlie
           Aito
            va
     l General i n
            Risrne
             en
     l Outwardsu a c
l References




             237
Introduction

                     as
This paper is intended a basis                        a h
                              for a workshopsessiont t e
         and
conference assuchis       An       of
                     brief. outline the market is given with
          of the          of        and
descriptions mainclasses business outwards      reinsurance.
               are    for
Some references given further         and
                              reading the CII can provide
a comprehensive      lt
                     i
               readings.

    History
Brief

       is youngest thethree
Aviation the        of        major      insurance
                                   non-life      divisions:
Marine,Non-Marine,        It
                  Aviation.commencedwiththedevelopment   of
          at            of
aeroplanes the beginning this  centuryand has progressed in
          with              and           of
conjunction thedevelopment manufacture aircraft    through
                          day
two worldwars to thecurrent withthepresent highlydeveloped
        idsr.
         n
aerospaceu t y

       internationalcommercial service,
The first        daily          air      betweenLondon and
     commencedin 1919.
Paris,                  Thishassince        to
                                    developed today’sworld-
wide airline                   all
            network connecting countries.   This has been
          by
accompanied the        of       and          aviation
                growth national international law by
      treaty
statute, and convention.

                   Market
Growth oftheAviation

Inthe    days aviation,
     early   of       insurers provided
                             also           on
                                       advice safetyand
riskmanagement.                 by
               Rateswere affected whether          was
                                         such advice
 ae.
tkn

      pooled
Insurers        to
            risks reduce  exposure toobtain
                                 and      greaterc n c l
                                                 e
                                                t hia
        with
knowledge        rsucs
                   e
            limited o r e .

        UK
The first poolwas theBritish       Insurance
                            Aviation        Group, writing
       for                  the
business theUnionof Canton, WhiteCrossInsurance    Agency
and Heath’s       at       expanding response competitive
           syndicateLloyd’s,       in        to
        to
pressuresbecomeBAIC (the      Aviation
                         British              Company) in
                                      Insurance
1931.




                            238
           and
The Aviation General         Company, A&G, was formed in
                      Insurance
           UK
1935by other companies.

        aviation
The first     policy      at
                    written Lloyd’swas theWhiteWings in
1911.The Lloyd’s       Underwriters
                Aviation                     LAUA, was
                                  Association,
      in             Aviation
formed 1935torepresent               itrss
                                      ne
                            syndicates’e t .

     the
After second  world        general
                   war other             companies, well
                                 insurance          as
            of
as or instead joiningBAIC or A&G, started       own
                                         their aviation
insurance            In
         departments. 1949 the Aviation   Insurance Offices
          AIOA,           to       their e e t .
                                       n
Association, was formed represent i t r s s

      developments occurring other
Similar         were        in              especially
                                    countries,       h
                                                    te
            France,
USA, Australia,   Germany,      and
                          Holland Scandinavia.

In 1983, Guardian Royal Exchange, Phoenix and Norwich Union
mergedtheir       interests LondonAviation
           aviation      asthe               InsuranceGroup,
                  was
LAIG. In 1991this merged with BAIC and A&G as the British
Aviation        Group,
        Insurance     BAIG.

        the
In 1986, Airlines       the
                 formed Airlines               Company,
                                  MutualInsurance
             additional
AMI, toprovide              to membersandreduce
                      capacityits               insurance
     It            40
costs.now hasaround members,




Market Relationships

The worldaviationinsurancemarket     to
                                needs work closely togethers a
therisksundertaken       a              low
                  involve comparatively number of aircraft,
some highly      and
           valued with   verylarge        liabilities. the
                                  potential       In 1989
world      total premiumincome
     airline net                                   at
                                 was $350m although that  time
rateswere severely          Hull      are
                  depressed. values now several       hundred
      dollars potential
million      and               claims
                        liability canbe evenhigher.    Neither
         nor         are     to
companies countries able withstand risks.such     Even where
        require
countries           to
              cover be placed        local         willc e t
                               locally, companies a c p
theserisks and reinsurewith the world-wide  reinsurancemarket,
       what
retaining they         t e rdn.
                        o
                consider b p u e t




                              3
                             29
          brokers usedtoplace
International are                                business
                              much oftheworld-wide
              basis
on a coinsurance across  worldmarkets.Foreigninsurershave
      or            in Londonso that
offices representatives                   can
                                   brokers visit them to
     their        i te ik.
                   n h
obtain participation r s s

                    Union
The IUAI (International ofAviation          was
                                   Insurers) formed in 1934
          an      body          on       of
to provide official to speak behalf aviation       insurance
       and         a
interests toprovide central     to      the
                           office enable flow of information
betweenmembers.The world’smajor       insurers members.
                               aviation       are

             Market Organisations
Major Aviation

Airclaims                 AircarLimited) an international
         Limited(previously             is
          with
organisation regional      at       locations
                     offices strategic     world-wide  and
        surveyors
withfield                It
                elsewhere.took                and
                               overtheAirSafety Survey
       of            It
Division BAIC in1970. provides       andintelligence
                              statistical         services
for         aviation
   subscribing           and      oe tr.
                                   pr
                  insurers aircrafta o s

            Insurance
AIA (Aviation                is based in the USA. Its objects
                    Association)
   inter
are,       to        the
       alia, promote general         of
                             welfare theaviation    insurance
       and to discuss
industry                      topics.
                     educational      Any organisationh   i
                                                         wt
      inthe
interests aviation       may
                  industry become a member.

             Insurance
AIOA (Aviation             Association) founded 1949to
                     Offices        was        in
promote,protect                       of        i ues
                                                 n
               and advancethe interests aviation s r r ,
         intheir      with
particularly dealings official       and
                               bodies similar world-wide
 raiain.
ognstos

            of London Underwriters) association
ILU (Institute                    isan            of company
           representing
underwriters         insurancecompanieswritingmarine, aviation
           business the
andtransport                         It
                  in Londonmarket. provides itsfor members
           of
the facility its Companies’ Combined Policy which gives the
         of
proportiona risk         by
                subscribed each member company, each company
remaining     liable its
         solely                    The
                   for own share. ILU’spolicy      department
issuesthesepolicies                    to
                   which are considered have high security.
          premiumand accounting
Centralised                           areavailable members
                               facilities         to
      as        sr cs
                 ev
aswell technical i e .




                             240
                AirTransport
IATA (International                    was
                            Association) formed in 1945 to
promote safe,regular              air         to
                    and economical transport, fosteri   ar
         to
commerce, study         and
                problems provide meansofcollaborationand to
        with
cooperate ICAO andother             organisations.
                          international          is
                                               It opento
           airlines              as        by
international which are certifiedeligible their    national
           Its         is         with        house
governments. headoffice inMontreal a clearing system
inLondon.          conferencesairline s
         IATA traffic        fix       ae
                                      fr .

           Aviation
LACC (Lloyds        Claims         was
                           Centre) established in 1966 and has
   authoritydeal
full      to    withaviation  claims    to          by
                                     sent thecentre Lloyd’s
          They
underwriters. havehighly   skilled      to          each
                                  experts investigate claim
      duplication
avoiding       by each syndicate.

LAD (Lloyd’s  Aviation          was
                      Department) formed in 1946. It comprises
two main sections:Survey              aviation
                        whichinvestigates     claims, estimates
damage and checks             and           and
                   circumstances Information Records which
produces        Confidential andprovides
          Lloyd’s         Index                     t Lods
                                                     o
                                         information l y ’
underwriters.

LAUA (Lloyd’sAviation           Association)
                     Underwriters’                 and
                                          represents
      the       ofthe
supports interests Lloyd’s        market
                           aviation    and isopentoany
       writing
syndicate          bsns.
                    u
            aviationi e s

Recent Rating

                   year
The 1990underwriting had the lowestrates ever.Rates       at
                                                    trebled
the                   this
   end of 1991(although may not                 and
                               havebeenenough) were flat
                    were
in1992.40% increases seen in 1993 and 1994.

       Risks
Different

Airlines

         this
Generally covers       and liabilities
                   hulls                      that
                                   of aircraft can carry
                      although is not a hard and fast rule.
more than50 passengers,      this
       are       for    or
Aircraft covered loss accidental  damage and for reasonable
emergency        for
          expenses emergency landings.               t t r
                                                      o h
                                      Legalliability i d
      is       for
partiescovered bodily       and
                       injury property damage claims.




                             241
Examples of losses:

        -          12/12/88. passengers
LockerbiePan Am loss       243            16
                                     killed, crew.


Products

Thiscovers            vendors
          manufacturers,                   of aircraft
                             and distributors         and
      parts
aircraft         losses
           against    from their       arising
                                liability     from bodily
      or
injuries propertydamage causedby theseproducts.costsof
           defence
investigation, andnegotiation           are
                             ofsettlements included.

Examples of losses:

Chevron.       date May 1994. Contaminated was shipped
        The loss   is                   fuel
tosix      and             numberofaircrafti e .
     airports damageda large              n
                                         egns

      and
Airports Refuelling

This covers      and
           liability security          islinked products).
                             (refuelling        to
Bodily       and
       injury property damage is covered when caused by the
        of          or           in
services the assured any defect the assured’s            o
                                                  propertyr
          or            is   i h ae f h sue.
                              n
machinery, when property left t e c r o t e a s r d

Examples of losses:

No majorlosseshave arisen. The usual type of loss is a passenger
      over
tripping in the terminal.

aelts
Stlie

Cover isgiven forlaunch,                and
                         postseparation in orbit. Cover for
      is
launch purchased  well before the launch date, which may not be
     so      can
fixed, there be a long    exposureperiod.                  dat
                                          Thisissometimese l
                 transfer year.Post
withby a portfolio       each                     deals
                                         separation with the
movementtothepredetermined         path           the
                             flight and testing controls      of
            In orbit
thesatellite.              the        inthe
                   covers satellite pre determinedi h       l
                                                           f gt
 ah
pt.




                              242
Examples of losses:

       satellitewherethe
Merretts     loss                recoverede s t l i e
                        underwriter       h
                                         t aelt.

      Aviation
General

General         -    and       aircraft to   lessh n
         Aviationhulls liabilities, able carry  ta
50 passengers

Examples of losses:

The recent plane    in
                crash Leeds wherea short
                                       haul      crashedn
                                           aircraft     i
stormy         on
        weather its                               and
                    way to Aberdeen.Nine passengers three
crew died.

Outwards Reinsurance

Outwards             used       the
         Reinsurance tocover Aviation       Account can be split
into              to
    many sectionscover        specific general
                         either      or               The
                                               areas. major
groupscoverthe Non-Proportional,             and
                                 Proportional Facultative     &
Direct       of
      areas InwardReinsurance.                           sc o
                                   The Non-Proportionali net
can thenbe split  intovarioussectionssuch as Hull and Specific
              and
Reinsurances, theProportional/F&D          can      be
                                    section also splitt      n
                                                            i o
QuotaShare,   Generaland Main Account.Over thetopof these    XL
      sits
covers the Whole Account which is high up and may ‘drop down’
ifrequired. Finally,coveringbothAviation and Marine may be a
Blankercover.


            structured
Traditionally                 Programmesareoftenh e s e t
                    Reinsurance                   te ais
to readand follow.                comprise series layers
                  Thiswould usually         a      of
         of        retention withvarious
consistingan initial      level            back-uplayersand
             inorder protect
reinstatements      to      subsequentlarge      A
                                            losses.possible
       of     is
example this represented         as follows:
                        pictorially,




                               4
                              23
          can
Some layers be used on more than one loss.


           in          of                    te ifrn
                                              h
The notations thelegend theabovegraphrepresent d f e e t
     covering account. progressionblocks
layers      this        The          of              te
                                            representsh
coverforeach largelossthat    underthis
                          falls                      th
                                      programme,i.e., e
                     Cover on
numberofreinstatements. is a losses          b i,
                                              a
                                     occurrings s


            the          of
Historically recovery losses       occursin chronologicalorder.
                             an              into
However thereis presently investigation the optionof
           the        in
recovering losses an alternative      order,thatwould be more
         tothe
beneficial buyer the of    Outwards            This
                                    Reinsurance. problem    has
        due
surfaced tocertain         not
                      losses being      recoverable. number
                                    fully          Loss
3, in the above example, may be pushing  throughthe top of 4A7
whereas loss                                to
            number2 may notevenbe expected reach    4A5. Hence
it               for             in        to
  wouldbe better thereinsured question ‘swap’ order the      of
these losses and thus be able to recover fully on both of them.
Although  thislooks           for
                    reasonable the individual            on
                                               reinsured, an
individual programme basis, chaos could be caused due to all
                                by
programmes being rearranged both Inwards and Outwards
             If    is
Reinsurers. this to come about then it may take many years to




                             244
        and       to        all
organise, longer reallocateyears       particularly
                                   data,         for years
withmany large,          losses.
                recoverable     Thisalso               fr
                                        has implicationso
      thesea e s
pricing   lyr.


Outwards            is           set
        Reinsurancenotnecessarily up in the straightforward
mannerofthe above        The
                  example. programmecanbe structured  on an
         loss      that
individual basis, istotally          on
                             dependant the market value of
the   or
   loss warranty.

         of   type        could       a olw:
                                       s
An example this ofprotection be denoted f l o s


4B3         $lm xs$50m
4B4   $2m xs Underlying
4B5   $2.5m xs Underlying

4Bl             $lm   xs   $500,000   $25m   OLW   (one   loss
warranty)

Thisis     confusing!
      highly

                        on
The programmeisdependant theOriginal     Loss Level. When the
       loss
original exceeds                               The
                  $25m then4B1 is triggered. Reinsurer’s
        signed is
resulting             set       the      loss
             line then against total amount and if this
exceeds       then excess
       $500,000   the      amount is recoverable.

For example :

        loss
A large occurs                 loss
                  witha resulting value of $30m and so triggers
   l e.
    a
this y r
             has
Ifthereinsurer a SL% of 2% then   $30m*.02= $600,000 so  and
         i eoeal.
$100,000s r c v r b e


When the OriginalLoss Level exceeds $50m then 4B3, and all
         higher
subsequent           are         The
               layers, triggered. $lm from 4B3 is excess
ofthe$1.5m comingfrom4B1,andsothe  recovery        a sa.
                                                    s
                                           proceeds u u l




                                4
                               25
                        to             of
Anotheradded complication therecovery large     lossesoccurs
                incurred
when theretention      from otherAviation Programmes can be
       a
putinto ‘Loss pot’            from, say, the Hull Account or
                  and recovered
Main Account.        be      in
             Thiswill noted thewordings              to
                                             attaching each
programme.

           cover beenwritten a risks
More recently  has        on              bss
                                           a
                                   attachingi .


References


Reference                                   Source

CII Coursebook -                            CII
Aviation Insurance
and       Marine
Insurance

CII Coursebook -                            CII
Aviation  insurance
/ underwriting

CII Coursebook  -                           CII
       insurance
Aviation

CII Coursebook-                             CII
Aviationlaw and
claims

AviationInsurance                                 Library
                                            Institute
- G Lyons




                             246

								
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