Local insurers not badly hit by MH17 tragedy

PETALING JAYA: Local insurers that are part of the aviation insurance pool for Malaysia Airlines' (MAS) fleet, which includes flight MH17, are not likely to be hit too much by the tragedy, the second major incident to befall the airline in four months, as the bulk of the claims is expected to be covered by the war risk insurance underwriter.
Domestic insurance companies retain only 3% of the risk of the aviation hull and liability policy where the amount covered is small and shared among the pool members and therefore does not pose a systemic risk.
However, an insurance executive told SunBiz that the insurers are still compiling figures from various sources including brokers before the total claims can be determined.
"Its still early days but the indication we are getting is that it would take another three weeks before we can get a final figure," she said, adding that claims would be determined by the cause of the lost of aircraft, among others.
It is understood that local insurers, which are part of the all risk comprehensive policy insuring hull and liability, is likely to only be exposed to the liability portion of it as Lloyd of London's unit, Atrium Underwriting Group, the lead underwriter for MAS' war-risk insurance, covers the plane against malicious acts, known war risk insurance.
German insurer Allianz Global Corporate & Specialty (AGCS) is the lead insurer for the MAS fleet for the hull and liability policy.
The aviation hull and liability policy for flight MH17, like MH370, is underwritten 100% by Etiqa Insurance and Takaful Bhd, with the majority of the risk ceded to AGCS. Malaysian Reinsurance Bhd (Malaysian Re), a unit of MNRB Holdings Bhd, is one of the local players exposed to the risk as well.
It is learnt that all domestic insurer involved have submitted a statement to Bank Negara Malaysia, on the regulators' request, on the status of their exposure and claims related to MH17.
Taking parallels from the MH370 case, it was reported that Atrium has paid half of the US$100 million hull loss since the cause of the plane crash was still uncertain. The balance of the cost of the claim has been borne by the underwriters of the all risk policy.
"In the case of MH17, it could be more straightforward since we know the plane was shot down. However, it's still early days and we still need the official report on the cause of the crash," she said.
Regardless of the cause of the crash, the liability loss, which usually will represent the largest chunk of the claim, will fall on the lap of underwriters of the all risk policy.
The executive explained that the war risk insurance is separate from the all risk insurance.
"Under the war risk insurance, our net share is nil which means our loss is 100% recovered. However, if there is legal liability, then it would be covered under the hull and liability insurance," she said.
In this instance, the source said underwriters would require the third parties or family of the passengers to prove negligence on the part of the airline before any settlement is forth-coming.
However, just like in the case of the still missing MH370, MAS may be afforded some protection by the Montreal Convention.
The convention, which governs claims arising from disasters on international flights, accords passengers with automatic entitlements to any proven damages up to a fixed amount. The Montreal treaty only determines how much carriers, not other defendants, pay.
The accord caps payouts at US$170,000 per passenger regardless of whether the airline is at fault.