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Technical Rating Models and Airline Risk Differentiators

Technical Rating Models and Airline Risk Differentiators. Dan Boultwood 9 th December 2009. Background; Current Climate. Financial markets and world recession – airline crisis Insurers capital cost and return on equity Airline Losses – rating cycle – market capacity.

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Technical Rating Models and Airline Risk Differentiators

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  1. Technical Rating Models and Airline Risk Differentiators Dan Boultwood 9th December 2009

  2. Background; Current Climate • Financial markets and world recession – airline crisis • Insurers capital cost and return on equity • Airline Losses – rating cycle – market capacity Technical Pricing / Pricing Model – Dan Boultwood/08 Dec 09

  3. What are Insurers trying to achieve? • Net airline premium income greater than operational costs and claims incurred • Attritionals losses (below $10million) / large losses ($10-$250 million) / catastrophe losses (greater than $250million) • Technical models aiming to calculate the expected claims for the year • Expected claims Vs technical target premium Technical Pricing / Pricing Model – Dan Boultwood/08 Dec 09

  4. Actuaries and Underwriters • Underwriters are for intuitive pricing based upon personal experience • Actuaries are for technical premium based upon historical data Underwriters Confidence in • expected loss ratio Actuarial • Net result of Premium + Investment Return on equity Operational expenses and loses Technical Pricing / Pricing Model – Dan Boultwood/08 Dec 09

  5. Experience Rating – I.T. + Actuarial • Each airlines historical loss experience for an expected loss cost • The industry loss experience (Global) since 1999 • Key metrics assume that the past is a reasonable guide to the future • Data adjusted for inflation, loss development, changes in exposure • 95% comfort in historical data Technical Pricing / Pricing Model – Dan Boultwood/08 Dec 09

  6. Exposure Rating - Human Experience Evaluation • Selecting base rates • Peer grouping • Risk profile • Aircraft Type • Make and model, age, registration, seating capacity, values • Operations • Passenger or cargo – domestic or International – passenger mix – load factors • Departures • Route network – charter or scheduled – ACMI • Additional exposures • Maintenance, ground handling, refuelling, catering, other services Technical Pricing / Pricing Model – Dan Boultwood/08 Dec 09

  7. Airline Differentiating Risk Factors – Soft Factors Technical Pricing / Pricing Model – Dan Boultwood/08 Dec 09

  8. Safety Equipment Airline Underwriting – Dan Boultwood & Adam Spicer/11 June 2009 Page 7

  9. Safety Equipment • TCAS - Traffic Alert and Collision Avoidance System • EGPWS – Enhanced Ground Proximity Warning System • FADEC – Full Authority Digital Engine Control • ACARS - Aircraft Communication Address Reporting System • Wind Shear Altering and Detecting Systems • QAR – Quick Access Recorders Technical Pricing / Pricing Model – Dan Boultwood/08 Dec 09

  10. Safety Management Systems • FOQA - Flight Operations Quality Assurance Program / Flight Data Monitoring • LOFT - Line Orientated Flight Training • EFB - Electronic Flight Bags • ALAR -Approach Landing Accident Reduction / Stabilized Approach Monitors • LOSA - Line Operated Safety Audit Technical Pricing / Pricing Model – Dan Boultwood/08 Dec 09

  11. Safety Awareness / Culture • SMS system • Human factors • Voluntary reporting system • Crew • Cockpit Resource management • Company Technical Pricing / Pricing Model – Dan Boultwood/08 Dec 09

  12. Audits / Oversight • Regulatory bodies – good and bad • IOSA - IATA operational safety audit - benchmark • Codeshare partner audits – peer review Technical Pricing / Pricing Model – Dan Boultwood/08 Dec 09

  13. Other Factors • Technical dispatch reliability – statistics and lies!! • Key management personnel experience • Major shareholder or financial backers Technical Pricing / Pricing Model – Dan Boultwood/08 Dec 09

  14. Qualitative Information - Pilots Airline Underwriting – Dan Boultwood & Adam Spicer/11 June 2009 Page 13

  15. Qualitative Information • Flight Crew and Pilots • Minimum Pilot Requirements • Training provided and frequency • Pilot work force Technical Pricing / Pricing Model – Dan Boultwood/08 Dec 09

  16. Thank you Q & A

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