Marsh – which places Boeing’s $2.25bn manufacturers’ policy – recently communicated to lead carrier Global Aerospace and following markets/reinsurers that the company’s share of the Ethiopian Airlines loss had spiralled from $350mn to $990mn.
MGA Global Aerospace leads the programme with a 17.5 percent share. Other major markets include AIG, Starr, Chubb, Swiss Re, Munich Re, Axa XL and Allianz, according to sources.
Boeing’s insurers have already agreed to pay $650mn relating to the crash of the Lion Air Boeing 737 In October 2018, this publication understands.
The Ethiopian Airlines crash in March 2019 subsequently led to the grounding of the 737 Max 8 global fleet, resulting in a separate policy sub-limit $500mn claim.
Earlier this month, lead and follow markets were informed that the reserve on the Boeing share of the Ethiopian Airlines flight 302 crash was increasing from $350mn to ~$990mn.
The jump in Boeing’s reserves for the Ethiopian Airlines loss is expected to be largely felt in the aviation reinsurance markets, not least by Munich Re, which had a direct share of 8-10 percent on the programme, together with being lead capacity provider to Global Aerospace and also a reinsurer of other primary markets.
It is understood reinsurers are treating the Ethiopian Airlines loss and the grounding claims as a single occurrence as the order to ground the fleet happened in response to the fatal airline crash.
The increase of the Ethiopian Airlines share, together with the $500mn grounding claim and Boeing’s $650mn share of Lion Air, results in a loss of $2.14bn on the 2018/2019 year of account (renews 1 July).
This is close to the programme limit of $2.25bn, albeit a separate $500mn excess layer also exists. Other attritional claims are also likely which sources suggest could reach $50mn, based on historical precedent.
Renewal
The increase in losses comes after Boeing extended its three-year programme, paying an effective 100 percent increase.
The programme was initially due to expire in July 2021. However, sources say Boeing negotiated an extra year of cover to its existing policy with incumbent carriers for ~$200mn in premium – effectively double the circa $95mn per annum it paid at its last renewal.
In addition, Boeing is believed to have volunteered to pay an extra $100mn for the third year of coverage.
In contrast, rival manufacturers are understood to be witnessing rates up between 15 percent and 30 percent on product liability renewals for non-loss impacted business.
Munich Re heavily exposed
Of the carriers exposed to Boeing’s losses, European Munich Re is believed to be one of the most heavily impacted.
Munich Re is the lead capacity provider to Global Aerospace, the lead carrier on Boeing’s primary cover, providing nearly 50 percent of the pool’s capacity (see table).
The German reinsurer is also the majority owner of Global Aerospace. In December 2017, Munich Re purchased an additional 11 percent of the London-based aviation insurer, bringing its holding to 51 percent. Berkshire Hathaway owns the remaining 49 percent.
Speaking in the wake of the Ethiopian Airlines crash and subsequent grounding of 737 Max 8 planes, Torsten Jeworrek, chairman of Munich Re’s reinsurance committee, told the press it expected claims of up to €120mn ($141.6mn) stemming from both the primary and reinsurance layers of Boeing’s cover.
However, in its 2019 results, while Munich Re did not break down its losses stemming from Boeing, the carrier posted an aviation reinsurance underwriting loss of €315mn, compared to a profit of €58mn in 2018.
“In aviation reinsurance, we saw the biggest loss events since 2001, which had a considerable impact on our result in this class of business,” Munich Re said in its 2019 full-year results commentary.
The division posted a combined ratio of 166.3 percent for the year, compared to a 86.0 in the prior year.
Munich Re does not break down the financials of its primary aviation book in its full-year accounts.
Aviation reinsurance
For the aviation reinsurance market – which is led by carriers including Munich Re, Swiss Re, Hannover Re, Liberty, Cathedral/ Lancashire and Atrium – Boeing’s increase in reserves for the Ethiopian Airlines loss comes as the majority of accounts begin to renew.
Last year, the Boeing grounding and so called ‘Max events’ led to a recalibration of the aviation market, with 2019 deemed the worst year for underwriters of the class since 9/11.
Due to the prolonged uncertainty over the potential quantum of the Boeing loss throughout the year, underwriters were able to impose rate increases on both loss-hit and non-loss impacted business and layers at 2019/2020 renewals, with this trend expected to continue into next year.
Boeing could not be reached for comment and Marsh declined to comment on this article.
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