The new Airbus 380 took off for the first time, laden with tons of testing equipment, but designed to carry 555 passengers. The European Airbus consortium is already reporting 154 orders and commitments for the aircraft, according to Reuters via Yahoo News. On the same day, news stories reported on the FAA investigation of a near collision between BWIA Flight 431 (a Boeing 737) and American Airlines Flight 2198 (a Boeing 757), with hundreds of passengers at risk about 8,000 feet over Miami International Airport. The new Airbus A380 super-jumbo will carry more passengers than any before it. Some think that its size presents a potential liability exposure that exceeds the existing capacity of the aviation insurance market.
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To assist in the analysis of this exposure, a paper to the 2002 GIRO convention of the Institute of Actuaries (UK) may be of assistance. Harding, et al "Aviation Insurance." (55 pages in PDF format).
From the introduction:
"The paper briefly describes the main sectors of the airline insurance market, and the factors that are determining results in this area. In particular, the after effects of September 11th are considered in some detail. The Working Party suggests changes that could be made by insurers, expected growth in the main sectors, and high profile factors that may materially impact on future experience. This paper is * * * aimed at those unfamiliar with this esoteric but high profile area of the General Insurance Industry."
A second paper also presented at the 2002 convention, addresses aviation exposures as one of several potentially catastrophic exposures. D.E.A. Sanders (Chair), et al "The Management of Losses Arising from Extreme Events." (261 pages in PDF format). The paper explores extreme events and their insurance impact, including detailed appendices with historical data and graphical presentations. An explanation of Extreme Value Theory and existing catastrophe models is included, with a perspective on realistic disaster scenarios. It includes consideration and probability indications for catastrophic weather, geological events including tsunamis, earthquakes and volcanoes, manmade disasters and collisions with meteorites or comets. A concluding portion addresses the challenge of global insurance capacity to handle these exposures.
From the Introduction:
"If the world’s to globalise then the final conclusion is that the growth of mega cities and mega risks combined with a limited number of ultimate risk takers will mean that there is insufficient world wide insurance capacity to deal with many of the realistic loss scenarios, and that matters will not improve as the process continues. The main alternative is to rely on the wealth of the financial sector to absorb these losses which are minimal compared with daily fluctuations in asset values."
A full listing with links to all of the papers presented at this convention is accessible at the Institute's website for GIRO 2002.
Posted by dougsimpson at April 27, 2005 03:25 PM