Insurers face $2bn losses after New York crash

Insurers are facing losses of up to $2bn (£1.4bn) following this week's New York air crash, according to analyst AM Best.

The losses are not expected to threaten the survival of insurers and reinsurers, despite the huge costs incurred from the World Trade Centre tragedy.

If the air crash was caused by a mechanical defect on the Airbus A-300, the manufacturer will be liable. B&W Deloitte aviation actuary David Hart said: "If there was a defective part on the plane, it is likely the manufacturers of the plane will have to pay any liability costs."

Any other cause would leave the carrier, American Airlines, liable.

"Airlines buy insurance for $1.5bn (£1.04bn) to $1.75bn (£1.21bn), so the potential loss is up to that amount," said Hart.

Insurance Times can also confirm the airline is covered by the same insurance policy that existed at the time of the terrorist attacks.

It will be the third claim amounting to hundreds of millions of dollars in less than three months for American Airlines, which lost two aircraft on 11 September. The airline is believed to be renewing its insurance cover on 1 December.

Following 11 September, Global Aerospace Underwriting Managers (GAUM) confirmed it led cover for American Airlines. GAUM, the world's largest specialist aerospace insurer, is underwritten by Royal & SunAlliance, CGNU, Tokio Marine, Mitsui Marine, Munich Re, Zurich Insurance Company, CNA and Chubb Corporation. Swiss Re has confirmed it expects its total exposure to the crash's losses to be 2%.

Hart said the overall payout was unlikely to be as high as $1.5bn and could be considerably lower.

Chief economist with the US Insurance Information Institute,

Dr Robert Hartwig, said major US air disasters during the 1990s had cost insurers an average of $1.5m to $2m (£1.39m) per victim, mainly in life and property claims. Many of the passengers are believed to have been from the Dominican Republic, the plane's destination.

There were 260 people on board the American Airlines Airbus A-300, believed to have an insured hull value of up to $30m (£20.3m) when it crashed just minutes after taking off from JFK airport.

There were no survivors from the plane and eight people were missing on the ground on the Rockaway peninsula, where the plane crashed.

Dr Hartwig said: "The government scheme doesn't come into action unless it was an act of terrorism. In that case, insurers would have liability only to what they had been willing to write, which probably wasn't much more than $100m (£69.31m), if anything at all, because some probably withdrew from the market after the attacks.

"If it's due to a mechanical failure, the impact on the industry is larger and it further reduces the global pool of capacity available for paying any type of insurance claim."