The Value of Promoting your Operational Excellence

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Chester Kerry Osborne
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1 The Value of Promoting your Operational Excellence Insurance: More than just an Annual Deal Simon Knechtli Executive Director Willis Aerospace

reducing cost Refreshing: something on which you can negotiate Insurance trends and what may be ahead?

2 A Tour of Airline Insurance: Aspects for Africa Come on Africa! Airline safety is always improving Look forward to hearing progress on Africa IOSA Airline insurance: 15 years of reducing cost Refreshing: something on which you can negotiate Insurance trends and what may be ahead? Doing a good renewal deal Challenges! - The broker is not the risk taker - The price comes from insurers - Airline insurance is cheap? - Insurance: an investment or a cost? - Standing out, being chosen

3 2014 IATA Industry Safety Statistics 1.00 Africa experienced zero jet hull losses in 2014, an excellent result. The all-aircraft accident rate, however, remains considerably higher than the global average. Tony Tyler, IATA s Director General and CEO CIS M. East & N. Africa Asia Pacifc Latin America Europe North America Africa North Asia Source: IATA, 2014 Safety: Number of accidents per million sectors

4 Major Africa Airline Claims AIRLINE YEAR AIRCRAFT TYPE FAT. Afriqiyah Airways 2010 A Ethiopian Airlines 2010 B Mauritania Airways 2010 B Egyptair 2011 B777 - Dana Air 2012 MD Ethiopian Airlines 2013 B Linhas Aereas Mocambique 2013 Embraer Air Algerie 2014 MD ASKY Airlines 2015 B Source: Willis Aerospace

5 US$ (Millions) 2015 Cumulative Monthly Claims 2,500 2,250 2,000 1,750 1,500 1,250 4 YEAR AVERAGE US$1.31bn HULL RESERVE LIAB RESERVE US$389m US$351m 1, Jan Aug Jan Aug Jan Aug Jan Aug Jan Aug ATTRITION TOTAL CLAIMS US$349m US$1.01bn Excludes MetroJet

6 2015 Major Airline Losses Hull & Liability LOSS DATE OPERATOR TYPE LOCATION VALUE US$M 10 January ASKY Airlines B Accra, Ghana January United Airlines B Narita, Japan February TransAsia Airways ATR72 Taipei, Taiwan March Turkish Airlines A Kathmandu Tribhuvan Airport, Kathmandu, Nepal NDA 0 08 March SpiceJet Dash 8 Hubli, India March Germanwings A320 French Alps, France NDA March Air Canada A Halifax International Airport, Canada April Asiana Airlines A Hiroshima Airport, Japan April Turkish Airlines A320 Istanbul Atatürk Airport, Istanbul, Turkey NDA 0 10 May Joy Air MA60 Fuzhou Changle Int'l Airport, Fuijan Province, China August Trigana Air ATR42 Wamena Airport, Indonesia September British Airways B Las Vegas, USA 32 0 FAT. Excludes MetroJet SOURCE: WILLIS DATA: LOSSES >US$10M

7 Airline 5 Year Declared Premium & Claims GLOBAL 5 YEAR PREMIUMS 5 YEAR CLAIMS LOSS RATIO CREDIT BALANCE Asia/Pacific 2,121,022,477 2,142,006, % -20,983,579 Indian Sub Continent 308,337, ,793,803 87% 40,544,095 Africa 575,021, ,221,407 88% 70,800,478 South America 477,195, ,470,527 64% 172,725,078 Middle East 576,855, ,965,722 56% 251,889,804 North America 2,141,772,947 1,012,029,176 47% 1,129,743,772 Europe 2,459,981, ,456,948 40% 1,473,524,975 AFRICA* 5 YEAR PREMIUMS 5 YEAR CLAIMS LOSS RATIO CREDIT BALANCE Domestic 11,472,666 52,808, % - 41,336,237 Flag Carrier 407,375, ,751, % - 8,375,704 International 114,619,752 29,822,449 26% 84,797,303 Regional/Low Cost 36,413,251 5,838,483 16% 30,574,768 Africa makes up 9% of the claims over the last 5 years. It only represents 7% of the Global airline premium Source: Willis Aerospace. *Excluding Government/Military Worldwide Airlines with AFV >US$100m, including only those with 5 years declared Premium & Claims figures

8 Airline Premium/Claims Performance: Calendar Year Global Africa Africa Take out 2015 LR Airlines with AFV >US$100m only Claims include (est.) figure for attritionals and are subject to change, Products / Airport / ATC contributions are excluded *2015 Premium and Claims to date

9 AFV US$ (Billions) AFV US$ (Billions) Global & African Airline Performance Premium/Rate & Exposures 1,000 Global Africa Rates -48% Rates -42% 3, ,000 2,500 2,000 1,500 1,000 Net Premium US$ / Passengers (Millions) Net Premium US$ / Passengers (Millions) AFV PAX Premium Global grown faster than Africa: - Receiving significant cost reduction - Absorbing growth at nil cost Data Influences: AFV PAX Premium - Data influenced by premium corrections since 2010/11 claims - Data pool is small

10 Everyday Risk: Accident Survivability & Potential Cost Large & expensive claims but not catastrophe losses 136 passengers saved Aircraft value: US$124m 155 passengers saved Aircraft value: US$36m 400 passengers? Aircraft values: US$100m? 297 passengers saved Aircraft value: US$136m

11 General Classification of Claims Attritional Losses Major Losses Catastrophic Losses Frequent minor losses Low in cost Substantial industry loss $ millions in cost Tragic events Loss of life $100s millions in cost

12 Focus on Risk Management : Attrition Claims At Today s Level of Premium, it is a Challenge Attrition losses eroding catastrophe related premium Airlines are paying premiums far lower than the value of one engine

13 Is Airline Insurance Cheap? Yes, certainly if you present scale Right now, insurance cost remains on the slide; but for how long? Fortunes of a pre-july 2014 renewal Insurance refreshingly negotiable African aviation presents a continent of high, fixed and monopolistic cost If you re growing and developing insurer confidence, you will see advantages Watch for consolidation trends CNA Hardy to exit Aviation market CNA Hardy have announced a strategic decision to exit the aviation insurance sector due to the current challenging market conditions which continue to influence profitability XL Group plc Announces Acquisition of Catlin Group Limited Staff are today moving into combined offices in 23 locations across world following completion of 2.8bn deal Exor goes hostile as Partner Re accepts enhanced Axis terms Axis woos Partner Re with special dividend Endurance to Take Over Montpelier Re for About $1.83 Billion Endurance Specialty Holdings Ltd. agreed to buy Montpelier Re Holdings Ltd. after abandoning a hostile bid for another Bermuda-based insurance company Amlin Mitsui Another western insurer is to yield to a takeover by a Japanese rival after UK-listed Amlin accepted a 3.5bn bid from Mitsui Sumitomo.

14 Overview of Underwriting: Subscription/Syndication General Aviation: Classed as 50 pax seats

15 The Old and the New of Evidencing Subscription Willis

16 Are you just another Annual Insurance Transaction? or, The Transaction The Exciting & Respected Customer

17 Modern Safety & Quality Practices Can you demonstrate to Insurers a Proven Safety Culture?

18 Underwriting Information: Your Differentiation

Details of Underwriting Information Training Standards Minimum employment qualifications Pilot

and qualifications Type rating & conversion programme Cadet training Programme Simulator programme &

qualifications Engineer Training Programme Minimum qualifications Handling Personnel Training

19 Details of Underwriting Information Training Standards Minimum employment qualifications Pilot psychological screening Flight Crew Training Programme Minimum qualifications Pilot upgrade system and qualifications Type rating & conversion programme Cadet training Programme Simulator programme & facilities Current special additional simulations Cabin Crew Training Programme Minimum qualifications Engineer Training Programme Minimum qualifications Handling Personnel Training Ancillary Services Maintenance capability Aircraft Handling activities Crew Training Services to Third Parties Spares & Equipment

20 Information: Essentials that Demonstrate Excellence Demonstrating High Standards Proving Performance & Functionality Safety Policies Safety Committees System & Reporting Safety Culture Assessment Commentary Measurement Safety Targets Audit, Monitoring KPI, FDM, ASRs Home Base & Network Infrastructure Standards Challenges Management Risk Assessments Defects, Failures, Threats Activities & Output Optimisation Approvals & Certification IOSA ISAGO CAA / JAR / EASA Safety Awareness Industry Forums Seminars, Publications Measuring Safety Culture Human Factors FDM, CRM, LOSA Evidence Based Training ERC / Crisis Management Safety Training Aircrew Engineering Ground / Ramp Corporate & TP Services Aircrew, MRO, Handling Spares (fire protection) Contractual Standards Security Policies Home Base Network Stations High Risk Destinations Future Plans Managing Growth Safely New Activities New Risks

Interest of International Insurers = Accepting more

21 Contractual Risk Management $ Financiers Lack or mis - management of contracts Damage to airline brand reputation Interest of International Insurers = Accepting more responsibility and risk than necessary Damage to Loss Ratio Increased Premium

22 Investing in your Relationship with Insurers A special, familiar community meeting challenges daily and with passion Common industry desires, goals & challenges a community that competes All major aviation businesses insure in the same global market-place and are competing for insurers attention Passion is infectious: decisions in your favour go against the model Importance & value of consistent development of strong insurer relationships Hot-spot charges, special contract/coverage flexibility & good will to grey area claims Catastrophe: team performance that supports your brand and counters loss of sales, consumer & employee confidence Show Operational Excellence & Advanced Practices Enhance Appetite Accentuate Competition Best Programme Value & Performance Use Risk Management Bursaries They re either free or financially supportive

23 Insurance: Investment or a Cost? Catastrophe & Accidents - Crisis Management Teamwork

a cross functional and unique manner that makes MAS stronger than ever before Airline s best friends during crisis are the brokers, underwriters and the appointed

24 Insurance: Investment or a Cost? Mohd Fuad Sharuji, Crisis Director MH370 & MH017 MH370 & MH17 experience has somewhat remarkably enhanced teamwork and comradeship amongst all staff and departments in a cross functional and unique manner that makes MAS stronger than ever before Airline s best friends during crisis are the brokers, underwriters and the appointed lawyers, adjusters and emergency service providers Engage them on planning, preparation and exercises Having Right Partners, Comms with NOK & Media, Managing NOK, Info gathering, Legal considerations, Caregivers experience, Repatriation, Funeral arrangements, Government intervention, Handling personal effects

25 The Unthinkable MH370 A modern WB jetliner could disappear without a trace? Dealing with several conspiracy theories No hard evidence to support hypothesis Dealing with NOKs who will not accept any explanation If found, recovery could be close to impossible Crisis communication is a huge challenge Reacting to inaccurate media reports Trapped in political and diplomatic bureaucracy MH017 Access to crash site after weeks of crash Recovery of remains still ongoing after 8 months Multi repatriation for single body Return of personal effects Unimaginable challenge Dealing with media at lightning speed Trapped between squabble Vast disparity in funeral expenses Dealing with multi-faith religious and cultural practices Courtesy: Mohd Fuad Sharuji Crisis Director MH370 & MH17

26 Summary Invest in your insurance programme Promoting your operational excellence Partnering your broker to invest in insurer relations Practical Crisis Management drills The Promise to Pay has a purchase price Competitive Reliable product Caring, performance focused service You are all different businesses in an exciting industry Transmit your pride and enthusiasm to insurers Reap the rewards of the insurance community s respect and wish for partnership We know how to manage this for you

THE AVIATION PERSPECTIVE Assurance des Risques Transports Marine et Aviation Etat des Lieux et Perspectives

THE AVIATION PERSPECTIVE Assurance des Risques Transports Marine et Aviation Etat des Lieux et Perspectives Simon Knechtli Algiers, 5 th November 2014 Page 0 CCR Seminaire November 2014 Airline Industry