Message To Airlines: Know Your Insurer

By Mark E. Ruquet

NU Online News Service, Oct. 25, 337 p.m. EST?Some under-reserved aviation insurers may face financial difficulty in the future handling major losses, according to research by Swiss Re.

Their report warns that airline insurance buyers need to be circumspect about who they are placing their risk with.

"Aviation insurance is one of the most valued goods [for an air carrier]; without it, airlines don't fly," noted Andres Peter, global head of aviation and space, and managing director for the Zurich, Switzerland-based reinsurer.

"Purchasers need to know who they are putting their insurance with. It is important, basically down the line, to make sure that claims are paid when [the airline] needs the money."

While aviation insurance is not in a big crisis, there are signs that some carriers are in a weak position, especially after years of a soft market. Some insurers in this line could become insolvent in the next few years, said Mr. Peter, especially if they are hit by a major claim that drains their reserves.

The report states that due to under-reserving by a wealth of insurers in the 1990's, when capacity hit 250 percent in 1997, some insurers may be in a position of not being able to pay the bill as claims roll in.

Historically, the report said, "losses have outpaced premiums in ten of the past 13 underwriting years." And though gross premium has totaled $17 billion over that period, losses have come in at "roughly" $21 billion.

A major concern the market faces, according to the report, is that the drop in capacity has also meant a drop in the number of market participants. Capacity levels have dropped from 250 percent to 150 percent, the report said, and the number of underwriters participating in a single airline policy has dropped from 31 in 1997 to 20 today.

The report also notes that the decline in the number of carriers could encourage others to return to the market. This would be a positive development, the report adds, because "financially sound risk takers are needed to lend their support to the aviation insurance industry."

"We felt as though this was a timely subject to take up," pointed out Mr. Peter. He add that the purpose for the report is to give buyers a better picture of the market and prompt them to become more informed in their buying decisions. These decisions, Mr. Peter advised, should be based upon more than the price of the product.

Copies of the report are available at www.swissre.com, or by contacting publications@swissre.com.

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Message To Airlines: Know Your Insurer

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