Rate increases predicted for aviation insurance

The Oct. 28 explosion of an unmannned supply rocket and the fatal crash three days later of Virgin Galactic’s SpaceshipTwo “will add upward pressure” on aviation insurance rates, A.M. Best Company Inc. predicts.

“The Virgin Galactic SpaceShipTwo loss and Antares rocket explosion should support upward rate momentum through the busy November/December renewal season,” stated Oldwick, N.J.-based ratings firm A.M. Best, in a briefing released Nov. 5.

Orbital Sciences Corp.’s Antares rocket exploded Oct. 28 on launch from a NASA flight  facility at Wallops, Virginia, The Associated Press reported. Antares was intended to carry supplies to the International Space Station.

Three days later, SpaceShipTwo — which is intended to take paying customers into space for US$250,000 — was destroyed during a test flight. SpaceShipTwo is owned by Virgin Galactic. SpaceShipTwo’s pilot, Peter Siebold was injured and the co-pilot, Mike Alsbury, died.

If losses from the SpaceShipTwo tragedy “are in line with current market estimates,” of US$40 to US$50 million, the “total combined hull and liability losses for 2014 are likely to approach” US$1 billion, A.M. Best reported.

“A.M. Best notes there has been an unusually high incidence of aviation losses this year,” the company noted. A.M. Best alluded to hull losses last July resulting from fighting at the airport at Tripoli, Libya, and to two incidents involving Malaysian Airlines. Malaysian Airlines Flight 370 disappeared Marcy 8 on a flight from Kuala Lumpur to Beijing and then on July 17, Malaysian Airlines Flight 17 was shot down over Ukraine.

Those losses “helped to reverse a trend” where aviation rates were “significantly below peak levels” at the start of 2014, and declining through the first six months of the year.

But “capacity remains plentiful” in aviation insurance, and this “will constrain the magnitude of rate increases,” A.M. Best predicted. “More selective underwriting is anticipated, with greater scrutiny of an insured’s loss history.”

—With files from The Associated Press