A Review of the Nigerian Energy Industry

African Aviation Pool settles $6.93m claims

Favour Nnabugwu

The 52 member companies of the African Aviation Insurance Pool, said they paid about $6.93million claims to some airline operators in 2010.

The breakdown of the claims payment showed that the Ethiopian Airlines got the sum of $3.59million on account of the crash of one of its aircraft on January 25, 2010, while Libya’s Afriqiyah Airways got $2.36million also for a plane crash on May 12, 2010.

The pool also settled $420,000 claims to Compagne Africaine D’aviation, CAA, which overran the runway in Goma, Democratic Republic of Congo, DRC – DOL on November 19, 2009, and also paid $560,000 CAA claims for its aircraft that veered off the runway at Kinshasa Airport on January 2, 2010.

As a result, the huge claims settlement to the airlines affected the aviation pool’s profit in 2010, which plunged it into a loss due to the spate of plane crashes during the year. But the pool envisaged a stability of accounts to pave the way for real growth in the near future.

The increase in the size of aviation losses on account of air mishaps experienced in Africa last year could be said to be extraordinary when compared to previous years.

Gross premium income of the Aviation pool in 2010 stood at $5.89million with a subscribed capacity of $7.61million. The pool reported losses in underwriting profit and operating profit at $3.32million and $3.92million, correspondingly, even as its gross underwriting capacity remained at $17.5million as at January 2011.

The African Aviation Pool, also being managed by the African Reinsurance Corporation, saw its lead hull and liability premium rise by more than the market average on 2009/10 renewals largely as a result of significant increases in fleet value forecasts for the 2009/10 airline insurance programmes.

The development of tourism, propagation of democratically elected governments, increasing economic activities and growth, more intra continental trade and mass movements, formation of regional blocks all feed the aviation industry and the future promises more growth all contributed to the rise.

The African aviation market is likely to follow the local content initiatives adopted by some countries in the oil sector where growth and opportunities motivate local players to seek answers to local retention challenges.

The Commissioner for Insurance, Mr. Fola Daniel, said that the National Insurance Commission, NAICOM, is working on improving the capacity of indigenous insurance firms to enable them control substantial portion of the aviation insurance business in Nigeria.

He noted that with the capitalisation of the insurance industry and remarkable improvements recorded in the aviation sector within the last few years, there was hope of remarkable improvement in local content aviation insurance in the country.

According to Daniel, “It may not be prudent to retain 100 per cent risk in the aviation sector because this will negate the principle of spreading the risk” as the country loses about N100billion annually to capital flight in the aviation sector.

“Currently, we have relative financial capacity to play in the aviation business in Nigeria .With this relative capacity; we are trying to grow our human capacity because we need to ensure that the two work together for us to be able to play meaningfully in the aviation business.

For instance, a small aircraft that flies in the Nigerian air space costs millions of dollars. So, our capacity to take up such risk is growing. I believe that in the foreseeable future, we should be able to retain more.

The Insurance Commissioner further said, “I do not have a vision of the Nigerian insurance industry that can insure all the aircraft and keep everything here. Even if we can, we need to spread the risk. We cannot say at how many per cent we want to grow in the future.

“The reason is that if you have 10 aircraft, there are some of the aircraft that we can retain 60 per cent risk because of the value. For instance, if an aircraft costs $30million, we probably can retain 60 per cent of that. But when you have an aircraft that costs $300million, you might not be able to retain five per cent.

“That is why we cannot use a percentage across the line because it is subjective. It is usually considered on case

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