Plane Talking -  July 2011

In times to relax or rethink

The recent losses of an Egyptair Boeing 777-200, a Caribbean Airlines Boeing 737-800 and an Asiana Boeing 747-400 cargo aircraft serve as a stark reminder that despite the improved frequency of major losses over recent years compared with longer term averages, aviation presents significant exposure to a large loss. Indeed the value of these losses could reach approximately USD250 million.

Should the primary cause of the Asiana Boeing 747-400 event ultimately be proven to be the cargo, the high volume transported daily within the holds of passenger aircraft presents the sobering thought as to how this recent loss might have looked, had the aircraft been a passenger rather than a cargo variant.

Perhaps surprisingly, premium rating remains soft and one of the reasons may have something to do with the loss frequency assumptions used throughout the market's various pricing models in use today.

Over the last few years the insurance (and reinsurance) markets have not suffered many very large individual losses. And the critical question is whether this recent market experience provides a credible predictive measure of things to come and what role luck has played?

 

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