American International Group announced its intention to offer coverage to airlines for war and hijacking (terrorist) risks through its member companies with total limits up to $1 billion.
The decision comes in response to the severe economic disruption in the airline industry, not only in the U.S., but also in most other countries as a result of the abrupt cancellation of war and terrorist risk coverage. (See IJ Website Sept. 20), and subsequent moves by the governments of most countries, including the U.S., to guarantee sufficient funds to assure that coverage is provided in the short term. (See IJ Website, Sept. 24).
The U.S., which was the hardest it by the tragedy, has committed to assure coverage for the next 6 months. Other countries have agreed to cover premium raises for shorter periods. AIG’s announcement at least assures air carriers that they can obtain the necessary coverage they need to keep flying, even if it will be at rates 10 times or more higher than before Sept. 11.
The coverage is necessary not only to indemnify passengers and replace lost aircraft, but to satisfy the demands of airplane leasing companies, who have made it a condition in their contracts that their planes be adequately covered for war and terrorist risks. One of the principle activities of AIG’s subsidiary International Lease Finance Corp. is airplane leasing.
As yet the company hasn’t indicated when the coverage would become available, or its cost, but has said that it will offer “$150 million in excess of $50 million aggregate and up to $850 million in excess of $150 million, making available war risk and hijacking liability coverage of $1 billion per airline.” It expects its subsidiaries to work with international brokers to place the risks.
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