RAASI 2 nd International Aviation Insurance Conference

RAASI 2 nd International Aviation Insurance Conference Are the Russian Airlines being treated fairly by the International Reinsurance Market? Terry West, Regional Director, Willis Aerospace

- Current Market Environment - 2010 Premium Movement World v Russia/CIS - 5 Year Premium Movements v Russia/CIS - Significance of Russia/CIS Premium/Losses Within Worldwide Statistics Page 2

World Wide Airline Hull & Liability Premium and Claims on a Calendar Year Basis 2006 2010 (Net Leaders Terms US$M) Net Premium* Claims** Loss Ratio $2,500 25 $2,000 Attritional Attritional Attritional 20 $1,500 Attritional Liab Attritional Liab Liab 15 $1,000 Liab Liab 10 $500 Hull & Spares Hull & Spares Hull & Spares Hull & Spares Hull & Spares 5 $0 2006 2007 2008 2009 2010 Net Premium* $1,758 $1,645 $1,687 $1,961 $1,938 Claims** $1,370 $1,918 $1,431 $2,352 $2,073 Loss Ratio 77.9 116.6 84.8 119.9 107.0 Est Att Losses $400 $425 $425 $450 $450 * Premium includes all known airlines with an AFV in excess of US$100m and is based on Net London Lead Terms; it is subject to change as more information becomes available. ** Claims shown include the estimated figure for attritional losses. Claims are updated as more information becomes available. Claims are for western built aircraft only. Page 3

Hull & Liability 2010 Airline Loss Impact Willis estimate the 2010 claims total at US$2,073m 75% Hull and Spares losses vs 25% Liability losses (excluding attritionals) - (2009 Hull: 41% Liabilities 59%) 4 losses accounted for 65% of the death toll on fare paying flights. But overall accident rates continue to improve, reflecting the Industry's continued investment in safety. Cumulative losses for Insurers over the last three years are approximately US$250m The market had to deal with losses outside of the 'norm' - Saudi Spares loss & Washington Dulles hanger collapse being two examples There was: Only one major wide-bodied loss which had passenger fatalities No obvious exposure to US litigation No major fatalities likely to set higher benchmarks for higher awards Hull and Spares losses are however cash losses that impact underwriter cash-flow The number of underwriting entities and increasingly selective underwriting meant individual underwriter loss experience varied widely Page 4

Hull & Liability 2010 Major Hull & Spares Losses (In Excess Of US$10m) UPS Airlines ($142m) Aires Colombia ($35m) SATENA ($18m) Conviasa ($10m) Thomson Airways ($10m) Wind Jet ($31m) Mauritania Airways ($33m) Afriqiyah Airways ($123m) Azerbaijan Airlines ($13m) Airblue ($49m) Saudi Arabian Airlines ($250m) Ethiopian Airlines ($39m) Air India Express ($50m) Henan Airlines ($31m) Passaredo ($13m) Qantas Airways ($103m) Page 5

Hull and Liability 2011 Market Outlook Without change in capacity levels or significant levels of losses, market conditions will likely remain unchanged Capacity has been the primary driver over losses in recent years and no withdrawals are predicted The market remains a catastrophe market but increasingly selective understanding dilutes the impact of a market loss Exposure growth should outweigh continued consolidation and insolvency to fuel single digit premium growth External influences on the market, primarily the global economic recovery, will drive any change in market sentiment Many Insurers continuing to look for a balanced portfolio of Airline, Aerospace and Corporate Aviation risks to mitigate the Airline loss position Page 6

How have Russian/CIS Airlines been treated by Reinsurers in this Market Environment? Page 7

Hull & Liability 2010 Net % Premium Movements 3 25% 2 26% % Change in Total Premium Average Percentage Change for period 27% 25% 22% 15% 1 5% 12% 8% Core excluding loss AP s 1 4% 2% 8% 1 +3% 1% -5% -4% -1 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Russian/CIS Airlines Page 8

2010 Hull Rate % Movements 15% Hull Rate % Change Average Percentage Change for period 9% 1 8% 6% 5% 3% 3% 1% 1% -5% -5% -1-9% -9% -13% -15% -15% -2 Page 9-14% Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Russian/CIS Airlines

2010 Net Liability Rate per Passenger % Movements 5 4 3 43% % Change in Per Passenger Rate Average Percentage Change for period 29% 2 1 12% 12% -1-4% -1-6% -8% -1-4% -4% -1-2 -18% -17% -3 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Russian/CIS Airlines Page 10

Russian & CIS Airlines 5yr Hull Rate Progression Compared the Market Average -1 Russian/CIS Based Airlines Market Average 2006 2007 2008 2009 2010 AFV +3% on 2008 AFV +6% on 2009 AFV +7% on 2007 Hull Rate Progression -2-3 AFV +23% on 2006 AFV +9% on 2006 AFV +35% on 2007 AFV +24% on 2008-4 AFV +13% on 2009-5 Page 11

Russian & CIS Airlines 5yr Liability Pax Rate Progression Compared the Market Average -5% Russian/CIS Based Airlines Market Average 2006 2007 2008 2009 2010 Pax -1% on 2008 Pax +1 on 2009-1 Liab Per Pax Rate Progression -15% -2-25% -3 Pax +1 on 2006 Pax +2% on 2006 Pax +3% on 2007 Pax -18% on 2008 Pax +6% on 2009-35% -4 Pax +44% on 2007 Page 12

Russian & CIS Airlines 5yr Total Premium Progression Compared the Market Average 25% Russian/CIS Based Airlines Market Average 2 15% Total Premium Progression 1 5% -5% 2006 2007 2008 2009 2010-1 -15% Page 13

Russian/CIS Airline Hull & Liability Premium and Claims on a Calendar Year Basis 2006 2010 (Net Leaders Terms US$M) $160 $140 $120 $100 $80 Net Premium* Claims** Loss Ratio Profit: $115,879,158 30 25 20 15 $60 $40 $20 10 5 $0 2006 2007 2008 2009 2010 Net Premium* $54,308,530 $51,905,745 $62,534,789 $90,954,745 $97,908,349 Claims** $145,683,000 $0 $76,450,000 $3,100,000 $16,500,000 Loss Ratio 268.25% 0.0 122.25% 3.41% 16.85% * Premium includes all known Russian/CIS airlines and is based on Net London Lead Terms. ** Claims are for western built aircraft only. Page 15

Significance of Russian/CIS Risks in the Market 2006 Russian/CIS Airlines responsible for 3% of Market income but 10.63% of the claims 2010 Russian/CIS Airlines responsible for 5% of Market income but only 0.795% of the claims! Over the 5 year period then Russian/CIS Airlines Premium of $357,609,000 represents 3.97% of Market income and only 2.64% of the claims. Page 16

5 Year Profit/Loss Stats Worldwide Figures (including Russian/CIS Airlines) Premium Claims $8.989B $9.144B Overall Market Loss - $155,000,000 Loss Ratio 101.7% Russian CIS Figures Premium $357,609,000 Claims $241,733,000 Overall Market Profit + $115,876,000 Loss Ratio 67.5% An Underwriter with a 1 share participating on all risks would have lost $15.5M over 5 years An Underwriter only writing Russian/CIS Risks over the same period would have made a $11.5M profit. Page 17

Factors to be considered when analysing the statistics - Higher than worldwide growth in passenger numbers and significant deliveries of Western Aircraft has assisted in rates beating Market averages. - Only 2 significant losses over a 5 year period, and a trend whereby accident rates continue to fall at a rate of 3 per year. - Lower than world average pax awards However Rates may have been looked at even more favourably if concerns on some specific issues were not persistent which influences some Underwriters in not participating in any Russian Operators Insurances and effectively reduces capacity for Russian based Risks. Page 18

Underlying Concerns - Pilot training and conversion onto Western equipment - Infrastructure issues Airport facilities requiring upgrading and modernising - Weather related issues - Lack of enthusiasm by some operators to cooperate with Aviation Safety Inspectors - Bad press regarding Security breaches, drunken pilots, and even escaped bulls leading to diversions! Page 19

Are Russian Airlines being treated fairly by the International Reinsurance Market? I believe yes, but increased investment to improve infrastructure, and improved safety culture by some Operators could help us to beat the Market average trends by an even greater degree. Page 20

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