Login Register Subscribe
Current Issue

Third aviation disaster of 2014 could result in higher insurance rates

Reprints

The third major commercial aviation disaster of 2014, all of which were reinsured by Allianz S.E., could ultimately result in higher insurance rates.

Wreckage and bodies were found last week in the Java Sea from AirAsia Bhd. flight QZ8501, which dropped off radar Dec. 27 during bad weather on its way from Indonesia to Singapore with 155 passengers and seven crew members aboard.

And while the insured value of the aircraft is about $47 million, liability losses will push the total loss beyond that for Germany-based Allianz, the lead reinsurer for the flight.

“We can confirm that Allianz Global Corporate & Specialty U.K. is the lead reinsurer for AirAsia (for aviation hull and liability insurance),” Allianz said in a statement. “We stand by to support our client as fully and quickly as possible, working in conjunction with the insurance broker and our co-reinsurers.”

The airline's broker, London-based Jardine Lloyd Thompson Group P.L.C, was “providing every assistance as is appropriate in these distressing circumstances,” a JLT spokeswoman said.

This latest commercial aviation loss adds to the March disappearance of Malaysia Airlines flight MH370 and the July 2014 downing of Malaysia Airlines flight MH17. Allianz also is the lead reinsurer of both Malaysia Airlines flights.

Allianz declined to comment beyond its statement, but an aviation broker said the AirAsia loss may affect the market.

“It definitely impacts the sector in a year in which we've already seen some major losses,” said Peter Schmitz, New York-based CEO of global aviation specialty at Aon Risk Solutions.

The crash increased the number of fatalities of commercial airline passengers to more than 660 for 2014 compared with 265 in 2013.

The insured value of the AirAsia jet, an Airbus A320-200, is roughly $47 million, said Mr. Schmitz, but liability losses could be much higher and will take time to materialize.

“As we go into 2015, the AirAsia loss will develop and we'll get a better feel for how significant the liability side of this loss is. Liability losses take time to develop, and reserves are set, and it's too early to have a reserve set on this particular loss,” he said.

Roughly three-quarters of the world's commercial airlines renew their coverage in the fourth quarter, but rates “have not jumped to the magnitude that one might expect given the number and size of losses in 2014,” Mr. Schmitz said of fourth-quarter renewals that ranged from flat to 10% higher.

Going into 2015, however, the AirAsia loss could lead insurers to reduce capacity, and reduced capacity could put upward pressure on rates, Mr. Schmitz said.