Message To Airlines: Know Your Insurer

By Mark E. Ruquet

NU Online News Service, Oct. 25, 337 p.m.EST?Some under-reserved aviation insurers may facefinancial difficulty in the future handling major losses, accordingto research by Swiss Re.

Their report warns that airline insurance buyers need to becircumspect about who they are placing their risk with.

"Aviation insurance is one of the most valued goods [for an aircarrier]; without it, airlines don't fly," noted Andres Peter,global head of aviation and space, and managing director for theZurich, Switzerland-based reinsurer.

"Purchasers need to know who they are putting their insurancewith. It is important, basically down the line, to make sure thatclaims are paid when [the airline] needs the money."

While aviation insurance is not in a big crisis, there are signsthat some carriers are in a weak position, especially after yearsof a soft market. Some insurers in this line could become insolventin the next few years, said Mr. Peter, especially if they are hitby a major claim that drains their reserves.

The report states that due to under-reserving by a wealth ofinsurers in the 1990's, when capacity hit 250 percent in 1997, someinsurers may be in a position of not being able to pay the bill asclaims roll in.

Historically, the report said, "losses have outpaced premiums inten of the past 13 underwriting years." And though gross premiumhas totaled $17 billion over that period, losses have come in at"roughly" $21 billion.

A major concern the market faces, according to the report, isthat the drop in capacity has also meant a drop in the number ofmarket participants. Capacity levels have dropped from 250 percentto 150 percent, the report said, and the number of underwritersparticipating in a single airline policy has dropped from 31 in1997 to 20 today.

The report also notes that the decline in the number of carrierscould encourage others to return to the market. This would be apositive development, the report adds, because "financially soundrisk takers are needed to lend their support to the aviationinsurance industry."

"We felt as though this was a timely subject to take up,"pointed out Mr. Peter. He add that the purpose for the report is togive buyers a better picture of the market and prompt them tobecome more informed in their buying decisions. These decisions,Mr. Peter advised, should be based upon more than the price of theproduct.

Copies of the report are available at www.swissre.com, or by contacting[email protected].