Malaysia and AirAsia plane crashes hit insurer profits

Crashes, airports turning into warzones and lost planes hit the profits of 327-year-old insurer Lloyd's of London after the worst year for airlines since 2001.

Claims from the two Malaysian Airline crashes, fighting at Tripoli airport and other tragedies including an AirAsia plane crashing off the coast of Indonesia in December left Lloyd’s with £310 million of aviation claims - the most it has faced in 14 years.

These disasters came in an otherwise benign year for catastrophe losses at Lloyd’s, whose underwriting syndicates protect against risks including earthquakes and windstorms. It said it was too early to estimate the cost of potential claims from this week’s Germanwings disaster that crashed into the French Alps, although German insurance giant Allianz has already confirmed it is the lead insurer.

Lloyd’s of London can trace its roots back to 1688, when it was founded in Edward Lloyd’s Coffee House in the City of London. It is now the world’s largest insurance market with gross written premiums of £25.3 billion.

Its pre-tax profits dipped from £3.2 billion in 2013 to £3.16 billion last year in what its boss Inga Beale described as “challenging market conditions”.

As well as claims from aviation disasters, insurers’ profits have been hit by low interest rates and new investors like hedge funds, looking for better returns than conventional investments. The abundance of capital in the Lloyd’s market has held down the prices insurers can charge, creating “soft market” conditions.

“The robust performance of the market in 2014 reflects a collective achievement, of which we should be proud,” Beale added.

Lloyd’s first female chief executive said she welcomed the latest wave of takeover activity in the market because it was attracting overseas capital. Recent deals include Fairfax Financial of Canada buying Brit Insurance. She also highlighted the growing threat of and called for new investor into Lloyd’s to support this “new risk exposure”, rather than the data-driven property and casualty market.

Mark Grice, head of insurance at accountancy Mazars, said: “This is a good result given the low interest rate and premium rate environment. Also for Lloyd’s it has been a year of development as it sets operations in emerging markets such as Beijing. The Lloyd’s platform remains attractive as can be seen by M&A activity and its intent to modernise.”

MH370: Insurers of flight MH370 brace for payout Ranjit Singh | Updated: March 19, 2014

KUALA LUMPUR: The consortium of insurers of Malaysia Airlines Flight 370 led by Allianz are bracing themselves for a huge payout in respect of insurance claims connected to Malaysia Airlines flight MH370 from KL to Beijing which has been missing since March 8.

The biggest aviation compensation claims ever made were related to the 9/11 attacks in the United States, with an average payout of US$2.13 million per passenger.
Previously, one of the largest insurance payouts for an  aviation claim was for the American Airlines flight which crashed in Queens, New York in 2001 killing all 265 passenger and crew. Insurers paid a total of US$600 million for the insurance claim involving the crash.

“The loss of Malaysia Airlines Flight MH370 will likely mean big payouts from several insurance companies this year,” said an aviation analyst at a local stockbroking firm.
Insurers’ making up any consortium for this purpose would normally not disclose the amount of insurance taken because it could lead to costly litigation.
"Usually, the insurers and the airline company will not disclose the underwriting value, given the concerns over an extremely high claim from lawyers," said Hao Yansu, dean of the School of Insurance at the Central University of Finance and Economics who was quoted by China Daily.

Allianz confirmed on March 11, that it was the main provider of insurance for the aircraft itself, as well as the liabilities attached to the passengers and cargo.
However, the company declined to comment on the extent of its exposure or identify other insurers with exposure.

The insured value of the aircraft could amount to around $100 million, while the liabilities and compensation typically amount to a far higher amount, Reuters reported.
"The compensation will dent the financial performance of insurers. But such claims are rare events, thus have a limited impact on them in the long run," Hao said.
As both Malaysia and China are the contracting countries, the missing airplane is covered by the Convention for the Unification of Certain Rules for International Carriage by Air.
Malaysia became a signatory for the Montreal Convention which governs ticketed international travel in 2008. China signed in 2005.

The claim for the loss of the aircraft could also be huge. The current listed price of a Boeing 777-200ER is US$361.5 million, according to the Boeing Co website.
Further compensation from Malaysia Airlines depends on the reason for the accident. If it is established that the disaster resulted from a mistake by the airline, the compensation could be huge.

There were 154 Chinese passengers on board the missing flight  and  most of the Chinese passengers on the plane had purchased accident or life insurance policies, according to major Chinese insurers.

Ping An Insurance has the hardest passenger exposure, with at least 38 names on the aircraft manifest carrying the company's insurance policies, and possibly 15 more. China Life has confirmed having insured 30. Neither company has commented on the potential compensation amount involved.

China Pacific Life Insurance has confirmed 16 clients on the plane, with total compensation at about 5.44 million yuan .

"If it turns out to be a terrorist attack, some travel insurance policies may not apply. But the families of those who purchased life or accident policies would get compensation under any circumstances," Hao said.

Meanwhile Malaysia Airlines said it has sufficient insurance coverage to cover any legal liability arising from Flight 370.
In an email interview, MAS revealed that it had placed its insurance with a consortium of established and reputable insurers in the international aviation insurance market. This includes Lloyds syndicates and globally renowned insurance companies.

Further, MAS said it had enough insurance coverage to meet any eventual claims that may arise.
It has already been making early payments to the families of the passengers waiting for news of the search.
These payments however are entirely borne by MAS and is not part of any compensation that may be payable.

Read more at: http://english.astroawani.com/malaysia-news/mh370-insurers-flight-mh370-brace-payout-32108?cp