Insurance and re-insurance companies could face losses between US$250 million-US$450 million related to Malaysia Airlines' missing jet, according to Standard & Poor's Ratings Services.
In a note today, it expects the impact on the credit profiles of the rated reinsurers and insurers exposed to this event to be limited. The loss estimate is based on public and market sources, pending on potential court settlements.
"The losses will be well spread throughout the global aviation insurance and reinsurance markets, resulting in a limited credit impact on individual re/insurers," said Standard & Poor's credit analyst Dennis Sugrue. "The impact on smaller rated Asian insurers and reinsurers that have a share of the potential losses should be manageable because their reinsurance or retrocession protection is likely to keep their net loss relatively low."
"We do not expect the net retained losses (after the reinsurance payment) to have a notable impact on the overall financial profile of affected global re/insurance companies. The losses should be manageable for rated life insurers in Asia. The aggregated loss exposure of life insurance coverage, predominately for the Chinese nationals, appears to be limited."
The rating agency noted that while the tragedy is unlikely to trigger material changes in the pricing environment for global aviation insurance, it could result in claims from three different policy types: "all risk" aviation (which covers multiple-risk elements for commercial airlines); war and political risks; and product liability.
In the past few years, prices have significantly declined in the market for "all risk" aviation policies. Such softening is attributable to strong growth in capacity in this historically profitable line of business. At the same time, the number of claims and severity of losses have been declining since 2001.
"We anticipate that the losses related to the Malaysian jet will not arrest the recent decline in premium rates in the global aviation market. However, there may be implications for pricing in the aviation war risk insurance market. This is a separate insurance product that indemnifies the value of the airplane hull in the event of terrorist activity, hijacking, or pilot suicide, among others. This market is relatively small with limited players and pool of premiums (market estimates are less than US$100 million annually globally). If the Malaysian event is classified as a war loss, then it would be one of the largest losses in this class of business since the terrorist attacks on the World Trade Center in 2001. The loss would most likely lead to rate increases in aviation war policies in coming months.