Insurance rates may rise for China Airlines

China Airlines Co (CAL, 華航) may have to allocate additional funds for an increase in its premiums after its contracts expire, pundits said yesterday.

"Saturday's crash is expected to create a total loss of NT$30 billion in property insurance. Premiums for China Airlines will surely rise next year," a manager at Taiwan Fire & Marine Insurance Co Ltd (台灣產物保險), who refused to be identified, told the Taipei Times yesterday.

The NT$30 billion in losses only cover non-life policies, including those on the aircraft and loss of luggage, the manager said.

Taiwan Fire & Marine Insurance co-insured the airline's US$50 million one-year contract, along with eight other firms, by a total of 26.94 percent, while the UK-based Global Aerospace Underwriting Managers Ltd (GAUM) heads up the international re-insurers, including the American International Group and AXA Assurances, to cover the remaining 73 percent. CAL's current insurance contract will expire on Sept. 30.

The manager, however, refused to respond to media speculation that the premiums will be hiked up from US$50 million to US$70 million per year -- or to even US$100 million, only saying that "further negotiations will be held to decide the figure."

Given the fact that China Airlines' accident record has worsened with Saturday's crash, concerns were raised as to whether foreign re-insurers would be willing to continue to extend insurance to the company. GAUM refused to comment yesterday, while the head of China Airlines' insurance department, Lee Yen-lin (李彥林) expressed optimism that insurers will continue to support the company.

"Insurers will not walk out on us just because of a single accident. The losses are spread out since insurers and re-insurers co-share the risks," Lee said.

Hsin-tsai Chou (周賢財), a finance manager at Shinkong Insurance Co, said that "my company is not considering ending coverage for China Airlines."

Shinkong's losses should be minimal since the insurer only covered 1.6 percent of the CAL's joint insurance contract, he said.

A group of international re-insurers will arrive Taiwan this week to take part in the company's compensation negotiation with families of the deceased victims, Lee said.

According to the department of insurance under the Ministry of Finance, Saturday's crash will cost local insurers over NT$14.5 billion in life insurance -- NT$1.5 billion more than the company's last air crash in Taoyuan in 1997.

A total of 275 individuals will receive compensation from various types of insurance, including individual, group and travel coverage, the department's commissioner Leon Shen (沈臨龍) said.

The crash will cost Cathay Life Insurance Co Ltd (國泰人壽) NT$368 million, the Aetna Life Insurance Co of American (美商安泰) NT$304 million, the Kuo Hua Insurance Co Ltd (國華人壽) NT$188 million, the Nan Shan Life Insurance Co Ltd (南山人壽) NT$182 million and Shinkong NT$163 million, he said.