Best Comments on Insurance Implications of Malaysia Airlines Flight MH-17 Crash

July 24, 2014

A.M. Best has released a preliminary report, which indicates that the “total insurance loss of Malaysia Airlines Flight MH-17, which crashed over the Ukraine-Russia border on July 17, 2014, is not expected to result in any ratings actions.” Best’s Briefing entitled, “The Insurance Implications of Malaysia Airlines Flight MH-17,” states that the “total insurance loss will comprise passenger liability claims and physical damage to the aircraft.

“The liability loss will be shared between the insurance and reinsurance markets,” Best said. “Allianz SE, through its specialty lines subsidiary, Allianz Global Corporate & Specialty SE, is the lead reinsurer on aviation hull and liability risks for Malaysia Airlines, with the Lloyd’s market also likely to be affected by passenger liability claims (as will a number of global reinsurers). Due to the nature of the loss, a complex and lengthy settlement period is anticipated.”

Best also explained that there is “more certainty around the ultimate cost of physical damage. Lloyd’s Syndicate 609, which is managed by Atrium Underwriters Ltd, has confirmed that it is the leader of the hull war policy for Malaysia Airlines. The syndicate and its co-insurers have agreed to settle the hull war aspect of the loss and collection of funds has been instigated (subject to key facts remaining correct).”

Catherine Thomas, director, analytics and one of the authors of the briefing said: “For a number of years, abundant capacity has placed considerable pressure on pricing, as well as terms and conditions, across all aviation lines. At the beginning of 2014, rates were significantly below peak levels, and in spite of a number of large losses in recent years the market has remained profitable.

“For the niche war risk market, losses this year will considerably outweigh premiums written and insurers are expected to react with substantial rate increases.”

Best said it “believes the majority of the loss will be absorbed by the Lloyd’s market, as well as a number of global insurers and reinsurers. Given the diversified nature of business underwritten by these entities;” adding that it “does not expect to take any rating actions in response to this single large loss.”

To access the full, complimentary copy of this briefing, go to http://www3.ambest.com/bestweek/purchase.asp?record_code=227074

Source: A.M. Best

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