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Passenger liability claims and physical damage will comprise total insurance loss from Germanwings plane crash: A.M. Best


March 30, 2015   by Canadian Underwriter


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The majority of loss arising from the Germanwings plane crash in the French Alps last week will likely be absorbed by the Lloyd’s market, as well as a number of global insurers and reinsurers, suggested a briefing from ratings firm A.M Best Company.

Rescue workers work on debris at the plane crash site near Seyne-les-Alpes, France, Wednesday, March 25, 2015, after a Germanwings jetliner crashed Tuesday in the French Alps. French investigators cracked open the badly damaged black box of a German jetliner on Wednesday and sealed off the rugged Alpine crash site where 150 people died when their plane on a flight from Barcelona, Spain to Duesseldorf, Germany, slammed into a mountain. (AP Photo/Laurent Cipriani)

In the briefing report, entitled A.M. Best comments on impact of Germanwings plane crash on aviation insurance market, the rating agency said that it believed that the total insurance loss of Germanwings Flight 4U 9525, which crashed in the French Alps last Tuesday on route from Barcelona to Düsseldorf, will comprise of passenger liability claims and physical damage to the aircraft, and may put further pressure on the beleaguered aviation war sector.

Passenger liability claims will be covered as part of aviation “all risks” policies and will represent the majority of the overall loss, the briefing said. 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 were 150 people on board the plane, the majority of whom were citizens of Spain and Germany. All were killed when the plane crashed.

There is more certainty around the ultimate cost of physical damage, the briefing suggested, with the aircraft valued at $US6.5 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.

Related: Flight club members say co-pilot from crashed plane was ‘very happy’ with Germanwings job

“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 of analytics with A.M. Best. “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.”

The briefing noted that Allianz Global Corporate & Specialty has been cited as the lead insurer of the Germanwings aviation all risks policy covering the flight. “Given the diversified nature of business underwritten by these entities, A.M. Best does not expect to take any rating actions in response to this single large loss.”

Related: Malaysia Airlines to shed 6,000 staff as part of overhaul plan after disasters

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, the briefing said. The aviation market is still extremely competitive and pricing is likely to remain under pressure this year, in spite of this latest major loss,” the briefing suggested.

“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,” said Yvette Essen, A.M. Best’s director of industry research, Europe & emerging markets. “At the beginning of 2014, rates were significantly below peak levels.”

The incident follows a series of high-profile aviation losses in 2014, notably the disappearance of Malaysia Airlines Flight MH-370, hull claims due to fighting at Tripoli airport and the downing of Malaysia Airlines Flight MH-17.