Reinsurance News

Boeing losses could become “major event” for re/insurers: Deutsche Bank

25th March 2019 - Author: Matt Sheehan

Losses resulting from the recent Ethiopian Airlines crash and subsequent grounding of Boeing’s 737 Max 8 aircraft have the potential to spread throughout the industry and become a “major event” for re/insurers, according to analysts at Deutsche Bank.

boeing-737-aircraftThe firm stated that the complexity of the case means claims could come from many different angles and affect various policies.

Based on historical events, Deutsche Bank estimates that the pure property claim for the plane and indemnity payments for the crash victims will total between $50-100 million.

These losses will likely be incurred primarily by Chubb and Willis Towers Watson, who were earlier confirmed as the lead insurer and broker for Ethiopian Airlines, respectively.

However, with reinsurer Munich Re estimating its losses at between €100-120 million, it is clear that the crash has the potential to become a far bigger event for the industry.

Deutsche Bank noted that another large source of potential claims could come from Boeing’s liability coverage if the security system/software on the plane turns out to be a source of malfunction.

Further losses could also result from business interruption, with air carriers forced to cancel flights or shift capacity to other flights following the suspension of the entire Boeing 737 fleet in the days after the crash.

On the other hand, it could also affect broken value chains for businesses, analysts said, although Deutsche Bank believes the aircraft is less used as a cargo carrier.

Finally, it added that there is also a risk from potential law suits and with it from D&O policies.

Given the size of Munich Re’s loss estimation, Deutsche Bank expects the firm to incur substantial liability claims, although the absence of other major catastrophe events so far in Q1 2019 should leave the reinsurer well within its quarterly budget.

Munich Re owns 51% of Global Aerospace, which is the lead insurer for Boeing alongside broker Marsh. Berkshire Hathaway owns the remaining 49%.

Talanx boss Torsten Leue has suggested that Hannover Re could face exposure of more than €10 million resulting from the Boeing fall-out, while Swiss Re has confirmed that it is one of the minor insurance providers for Boeing, as well as Ethiopian Airlines.

Deutsche Banks also expects Zurich to have some exposure through a $35 million D&O policy with Boeing, based on reports from Bloomberg.

“We would not be surprised to see this loss being further spread among the sector,” analysts concluded.

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