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Germanwings loss pressures aviation war insurers

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Last week's crash of the Germanwings plane in which all 150 aboard were killed will put further pressure on the already “beleaguered” aviation war sector, says A.M. Best Co. Inc. in a special report issued Monday.

Best said it believes the majority of the loss will be absorbed by the Lloyd's of London market, as well as a number of global insurers and reinsurers, according to the report, which was issued by the rating agency's London office.

Allianz Global Corporate & Specialty S.E. has been cited as the lead insurer of the all risks policy covering the aircraft, which was operated by Germanwings, a unit of Cologne, Germany-based Deutsche Lufthansa A.G., according to the report.

The report says passenger liability claims in connection with the crash, which reportedly was caused by its suicidal co-pilot, will be covered as part of aviation all risks policies and represent the majority of the overall loss.

The level of liability is uncertain but will depend upon the nationality, earning potential and family status of the passengers and crew, according to the report.

In terms of physical damage, the aircraft is valued at $6.5 million.

Best says if reports that the plane crash was caused by deliberate pilot action are correct, the insurers that underwrote the airlines hull war policy, rather than its all risks policy, are likely to be liable for the physical damage.

The report notes the crash followed a series of high-profile aviation losses in 2014, including the March 2014 disappearance of Malaysia Airlines flight MH-370, hull claims caused by fighting at Tripoli Airport, and the downing of Malaysia Airlines flight MH-17 in Ukraine in July 2014.

The report says premium rates for the aviation war sector rose in 2014 in response to claim activity, although the level of increase was disappointing, given the magnitude of losses, and upward momentum stalled towards the end of the year.

The report says also the aviation market on the whole has performed well over the past 10 years, with results repeatedly bolstered by substantial reserve releases.