The aviation market was severely jolted by the losses from 9/11 and by the loss of the American Airlines aircraft at Queens, New York State in November of the same year. As a result, pricing, terms and conditions improved significantly. Since then, the loss record for the period 2002 to date has been outstanding, falling to around 50% of the long term average. For example, 2004 saw the lowest number of commercial jet losses and passenger deaths since records began in 1945.

The results achieved by Lloyd’s aviation underwriters reflect the improved pricing and claims environment. As with several other Lloyd’s accounts, prudent reserving has permitted releases to be made, inuring to the benefit of the 2004 annual result.

Top flight risk management required

Although the individual risks in Lloyd’s general aviation book are typically much smaller than those found in the airline sector, a lack of experience can still result in substantial losses. The variety of craft in use around the world – all with different reliability and loss histories – makes this a demanding class of business. One of the sectors in which Lloyd’s trades is industrial aid, which covers risks such as helicopters serving off–shore oil platforms; a good example of a complex risk type, involving hazardous operating conditions – and requiring high standards of risk management, if underwriters are to trade profitably.

Alongside the airline and general aviation accounts, runs a variety of other business classes, including the insurances of air traffic controllers, refuellers, baggage handlers and product liabilities. This latter category is one of the largest and most complex, covering losses arising from the failure of a product which results in injury or financial impairment. This can cover virtually any product which is involved in the aviation industry – from aero engines to passenger seats on board aircraft.

Underwriters in space

The satellite account is another highly volatile area in which Lloyd’s has traditionally been an industry leader. The high value of the risks insured, together with their limited numbers, means that even a small number of losses in a given year can push the account into overall loss. Another concern for underwriters is the potential for systemic faults, such as those recently experienced by a prominent manufacturer, where a design flaw was replicated across a fleet of satellites rendering their operational lives far shorter than planned. Again, this presents underwriters with the challenge of achieving a spread of risk while generating enough premium volume to keep the account viable.

Currently, underwriting conditions are good with a disciplined market offering the required limits of protection but with carefully structured coverages to contain exposures at acceptable levels. To some satellite manufacturers, these policy limitations are too narrow and some have taken the option to self–insure. This is a risky choice and has resulted in the bankruptcy of one satellite operator which suffered a total loss, wiping out its financial resources; a timely reminder of the value of insurance protections in allowing high risk ventures to be undertaken, with the potential for the losses of the few being shared among the many.