Aviation Insurance Re Insurance -16122008

Aviation Insurance & Reinsurance

Presentation By Vijay Thakur ( Universal Ins. Brokers Ser. P. Ltd. ) Date: 16th December, 2008 Venue: Stock Exchange Tower, Mumbai

Aviation Underwriting

AVIATION UNDERWRITING

Global Premium & Claims Statistics  Global Aviation Premium – USD 1.5 bln.  Incurred claims including attritional losses – USD 1.7 bln.  Indian Insurance Premium General Aviation – USD 17 mln. Airlines – 56 mln. Claim Ratio – 95 % Total No. of Aircraft - 1118

Aviation History

Aviation History • On 17th of December, 1903 Orville Wright flew an aeroplane for 12 seconds covering a distance of 120 feet. • JRD Tata was the pioneer of aviation in India. • In 1932 Aviation division of Tata Sons Limited was set up with mail service. In 1938 the Airline had carried a few hundred passengers too. • In 1946, Tata Sons Ltd., was converted into Air India Limited.

MAJOR INDIAN AIR DISASTERES  Major Indian air disasters1996  - Saudia Airlines Boeing 747 and Kazakh Airlines Ilyushin-76 collide in mid-air west of Delhi, killing 3,491,993  - Indian Airlines Boeing 737 crashes in Maharashtra, killing 521,991  - Indian Airlines Boeing 737 bursts into flames in Manipur - 69 killed 1990  - Indian Airlines Airbus 320 crashes at Bangalore airport, killing 921,988  - Indian Airlines Boeing 737 crashes in Gujarat state, killing 131

Main Airline Insurance Coverages  Hull “All Risks”  Hull “War Risks”  Spares “All Risks” / “War Risks”  Aircraft Liabilities – Third Party – Passenger – Baggage – Cargo and Mail  Excess Liability - Third Party War Risks  Hull Deductible  Aerospace Manufacturers Products & Grounding Liability  Airport Owners & Operators Liability  Product Liability

Hull All Risks  Coverage – Covers all risks of loss of or damage to aircraft unless otherwise excluded – Covers flight and ground risks – Coverage includes ingestion / Foreign Object Damage (F.O.D.) caused by a single recorded incident  Main Exclusions – Mechanical Breakdown / Wear and Tear – War, Hi-jacking and Other Perils Exclusion Clause AVN 48B – Nuclear Risks Exclusion Clause AVN 38B – Items detached from aircraft and held as spare parts – Loss of Use

Hull All Risks  Limits – Total Loss / Constructive / Arranged Total Loss:- Pay agreed value as declared by airline and agreed by insurers for each aircraft – Partial losses pay for cost of repairs less deductible – Deductible is also applied to TL/CTL claims of on Rotor Wing Aircraft  Deductible – Jets wide-bodied US$1,000,000 – Hybrid US$750,000 – Narrow bodied US$500,000 – Standard market deductibles may be increased in the future – Separate deductible insurance may be arranged to “buy down” to a lower level

Hull All Risks  Additional Provisions:– Missing aircraft – Forced landing, salvage charges and expenses – Cost of repairs – Loss payee provisions (leased / financed aircraft) – Leased components with Stipulated Loss Value – Supplementary Expenses Search & Rescue Operations, Runway Foaming

Hull War and Allied Perils  Coverage – Covers loss of or damage to aircraft by War and Allied Perils as excluded from All Risks policy such as War / Civil War etc. Act of Terrorist, Strike / Riot, Civil Commotion, Confiscation etc., Hijacking – Standard market wording - LSW 555B / LSW 555C  Main exclusions – Hostile detonation of nuclear weapon. – War between UK, USA, France, Russian Federation, China – Confiscation etc. by government of registration – Confiscation etc. for financial reasons. – Repossession by title holder – Delay, loss of use, consequential loss

Hull War and Allied Perils  Limits – Each aircraft covered for the same agreed value as under the hull all risks policy subject to a policy aggregate sum insured per annum

 Deductible – No deductible

 Additional Provisions:– Extortion and Hijack Expenses (90% of payments properly made) – Leased components with Stipulated Loss Values

Hull War and Allied Perils  Cancellation, Revision and Automatic Termination Provisions:– Insurers may issue 7 days notice to review premium and/or geographical limits at any time – Automatic review of premium and/or geographical limits on expiry of 7 days from hostile detonation of nuclear weapon – Insured or insurers may cancel policy by giving 7 days notice prior to the end of each policy quarter – Automatic policy cancellation in the event of war between UK, USA, France, Russian Federation, China (if aircraft are in the air, coverage continues until first landing)

Spares All Risks  Coverage – Covers all risks of loss or damage to spare aircraft engines, parts or equipment owned by the Assured or for which they are responsible – Covers whilst in storage or in transit – Covers Ground Equipments – Covers Engines

Spares All Risks  Main Exclusions – Mechanical / electrical breakdown, wear and tear. – War, Hi-jacking and Other Perils Exclusion Clause (AVN 48B) (may buy-back cover normally in conjunction with hull war) – Nuclear Risks Exclusion Clause AVN38B – Inventory losses – Loss arising under process and directly resulting there from – Any spare whilst fitted to an aircraft

Spares All Risks  Limits – Normally insured on a replacement value basis up to value declared - will pay cost of repair in event of partial loss (less deductible). Subject to a limit per occurrence and a sub-limit for any one transit  Deductible – US$ 10,000 each claim, but for engine running/testing losses the hull all risks deductible applies

Spares War and Allied Perils  Usually arranged in conjunction with hull war  Coverage for paragraph (a) of LSW 555B limited to transit risks only

 Coverage

Legal Liability

– Will indemnify against legal liability for bodily injury or property damage suffered by third parties (including passengers baggage and cargo) arising from the aviation operations of the airline and caused by an occurrence – Relates mainly to  Operation of aircraft  Injury to passengers  Damage to cargo / baggage  Operations at airports and other aviation premises  Services to other airlines  Can include war and allied perils “Writeback” per AVN 52E

Legal Liability  Non-Aviation Liability Clause AVN59 defines extent of aviation liability:– Occurrences involving aircraft or parts or equipment – Occurrences arising at airport locations – Occurrences arising at any other location in connection with the Insured’s business of transporting passengers or goods by air – Occurrences arising out of the supply of goods or services to others: in connection with the use and/or operation of aircraft  involved in the air transport industry

 Subject to policy conditions and exclusions

Legal Liability  Main exclusions – "Non-Aviation" risks e.g. Employers Liability / Motor liability – Damage to property owned, leased or rented by the assured – Nuclear risks (AVN38B) – Noise, pollution, contamination, electrical interference (AVN46B). – Hostile detonation of nuclear weapon (Article (b) of AVN48B). – Other exclusions per AVS.104B

Legal Liability  Limits – Will pay damages assessed against the assured subject to a limit any one occurrence. Plus legal fees and expenses – AVN52D limits third party war liability coverage to USD 50,000,000 each occurrence and in the annual aggregate

Deductible Standard Market – Baggage US$1,250 – Cargo / Mail US$10,000 Deductibles

Legal Liabilities  Rating – Departure rate plus per passenger carried basis – US$ amount per 1,000 RPK’s – Smaller risks Third Party Legal Liability (TPLL) US$ per aircraft plus Passenger Legal Liability (PLL) US$ per passenger seat – Following 11/09/2001, “Special Surcharge” of USD 1.25 per passenger introduced for all airlines

Legal Liability  Additional Provisions:– Funeral, medical, illness, transportation and repatriation expenses – Public enquiry, removal of wreck, search and rescue, runway foaming expenses – Defence, settlement and supplementary payments

Legal Liability  Additional Provisions:– Excess “Non Aviation” Liability  Sum insured US$ 25,000,000 any one occurrence and in the annual aggregate, in excess of underlying insurance – Personal Liability (per AVN60)  Sum insured US$ 25,000,000 any one offence and in the annual aggregate

Selected Policy Conditions  Airworthiness / comply with DGCA regulations  Issuance of tickets / waybills  Advice of material alterations  Cancellation clause  Individual contracts to be agreed by insurers  Claims notification / No admission of liability

Selected Policy Conditions  Coverage – Third Party Excess AV52 coverage  Limits – excess of primary limit  Rate – US$ rate per passenger carried

Additional Airline Insurance Coverages  Engine Mechanical Breakdown  Profit Commission Insurance  Passenger Voluntary Settlement  Personal Accident / Loss of License  Hull “Total Loss Only”  Technical Records

Additional Airline Insurance Coverages  Financial “Balance Sheet” Protection Products – Loss of Use – Loss of Profits / Extra Expenses – Grounding

Aviation Reinsurance       

Company Retention Obligatory cession to GIC GIC’s own capacity Treaties of the company FAC support from London market War excess liability Leadership

THANK YOU