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Germanwings crash adds further pressure on aviation war sector - A.M. Best

Source: Asia Insurance Review | May 2015

The March crash of a Germanwings carrier may well put further pressure on the beleaguered aviation war sector, said A.M.
Best. The agency believes the majority of the loss will be absorbed by the Lloyd’s market, as well as a number of global insurers and reinsurers. Allianz Global Corporate & Specialty has been cited as the lead insurer of the Germanwings aviation all risks policy covering the flight. 
 
This loss follows a series of high-profile aviation losses in 2014, notably the disappearance of Malaysia Airlines flight MH370, hull claims due to fighting at Tripoli airport, the downing of a second Malaysia Airlines flight MH17, and the crash of AirAsia QZ8501 due to bad weather.
 
Although premium rates for the aviation business did rise in 2014 in response to increased claims activity, the rating agency noted that the level of increase “was disappointing given the magnitude of losses”, and “upward momentum [of rates] had stalled towards the end of 2014”. 
 
Rates pressured by accumulated capacity 
On the whole, it was noted that the aviation market had performed well over the last decade, “with results repeatedly bolstered by substantial reserve releases”. As such, insurers have been attracted to the sector, leading to abundant capacity – accumulated for a number of years – placing considerable pressure on “pricing, as well as terms and conditions, across all aviation lines”.
 
A.M. Best said the losses in 2014 slowed the decline and there was an uptick in rates in the fourth quarter of the year, when the majority of major airline and war policies were renewed. However, the increases were largely limited to loss-affected accounts. Hence, the aviation market is “still extremely competitive and pricing is likely to remain under pressure this year, in spite of the latest major loss.”
 
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