American Airlines jet engine fire looks set to trigger latest airline all-risks loss

By Michael Jones

March 14 -

(The Insurer) - The airline all-risks market looks set to shoulder another loss after the engine of an American Airlines plane caught fire on diversion to Denver on Thursday, two senior aviation sources told The Insurer.

• Majority of damage is to CFM56 engine, valued around $10 million

• Starr leads all-risk cover; aircraft insured value is around $30 million

• Insured loss unclear due to American Airlines self-insured retention

• Incident occurred after plane diverted to Denver due to engine vibrations

• Adds further pressure to aviation all-risks market amid recent losses

The incident

took place at Denver International Airport on Thursday March 13 after the plane diverted from its planned destination of Dallas when the crew reported engine vibrations, the Federal Aviation Administration said.

American Airlines said the plane had landed safely and taxied to the gate when it experienced an “engine-related issue.”

Two senior aviation market sources said the American Airlines cover is brokered by Willis and the plane’s insured value is around $30 million.

These sources said damage was largely confined to the CFM56 engine that caught fire, with limited impact to the broader aircraft. This engine is typically valued at around $10 million.

They said that the airline all-risks policy would take on losses related to the engine, but this could be subrogated to the engine manufacturer in the event of a design or manufacturing fault. It is unclear at present what the cause of the engine fire was.

One separate aviation source close to the placement said that overall insured loss level was unclear at this stage due to American Airlines self-insured retention. This publication could not confirm the retention at the point of publication.

In January this publication reported that

Starr

leads American Airlines all-risk cover, while

Chubb

leads its London placement. Two senior airline market sources said this remained the case.

Although it is too early to suggest a definitive insured loss total, one senior aviation underwriting source said the incident would add to market pressure in the context of

recent losses

, Swiss Re’s

withdrawal

and the Lloyd’s market message highlighting aviation as an

area of concern

.

Lloyd’s chief underwriting officer Rachel Turk said: “We are seeing strategies that don’t seem entirely logical to us for a class that has gone from probably to almost certainly inadequately priced.”

Earlier this month The Insurer reported that

Virgin Atlantic’s

Axa XL-led airline all-risks cover has priced up around 10%, which three senior aviation sources said could indicate a shift in the market’s mood.

Willis declined to comment. Starr, Chubb and American Airlines were approached for comment.