Technical Rating Models and
Airline Risk Differentiators
Dan Boultwood
9th December 2009
Background; Current Climate
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Financial markets and world recession – airline crisis
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Insurers capital cost and return on equity
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Airline Losses – rating cycle – market capacity
Technical Pricing / Pricing Model – Dan Boultwood/08 Dec 09
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European Operations
What are Insurers trying to achieve?
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Net airline premium income greater than
operational costs and claims incurred
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Attritionals losses (below $10million) / large
losses ($10-$250 million) / catastrophe losses
(greater than $250million)
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Technical models aiming to calculate the
expected claims for the year
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Expected claims Vs technical target premium
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Actuaries and Underwriters
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Underwriters are for intuitive pricing based upon personal experience
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Actuaries are for technical premium based upon historical data
Underwriters
Confidence in
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expected loss ratio
Actuarial
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Net result of
Premium + Investment
Return on equity
Operational expenses and loses
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Experience Rating – I.T. + Actuarial
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Each airlines historical loss experience
for an expected loss cost
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The industry loss experience (Global)
since 1999
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Key metrics assume that the past is a
reasonable guide to the future
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Data adjusted for inflation, loss
development, changes in exposure
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95% comfort in historical data
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Exposure Rating - Human Experience Evaluation
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Selecting base rates
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Peer grouping
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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
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Airline Differentiating Risk Factors – Soft Factors
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Safety Equipment
Airline Underwriting – Dan Boultwood & Adam Spicer/11 June 2009
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European Operations
Safety Equipment
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TCAS - Traffic Alert and Collision Avoidance System
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EGPWS – Enhanced Ground Proximity Warning System
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FADEC – Full Authority Digital Engine Control
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ACARS - Aircraft Communication Address Reporting System
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Wind Shear Altering and Detecting Systems
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QAR – Quick Access Recorders
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Safety Management Systems
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FOQA - Flight Operations Quality Assurance
Program / Flight Data Monitoring
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LOFT - Line Orientated Flight Training
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EFB - Electronic Flight Bags
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ALAR -Approach Landing Accident Reduction /
Stabilized Approach Monitors
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LOSA - Line Operated Safety Audit
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European Operations
Safety Awareness / Culture
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SMS system
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Human factors
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Voluntary reporting system
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Crew
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Cockpit
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Company
Resource management
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Audits / Oversight
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Regulatory bodies – good and bad
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IOSA - IATA operational safety audit - benchmark
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Codeshare partner audits – peer review
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Other Factors
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Technical dispatch reliability – statistics and lies!!
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Key management personnel experience
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Major shareholder or financial backers
Technical Pricing / Pricing Model – Dan Boultwood/08 Dec 09
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Qualitative Information - Pilots
Airline Underwriting – Dan Boultwood & Adam Spicer/11 June 2009
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European Operations
Qualitative Information
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Flight Crew and Pilots
– Minimum Pilot Requirements
– Training provided and frequency
– Pilot work force
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European Operations
Thank you
Q&A
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