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THAI opposed to regional pool plan

November 13, 2001

The Asian Develop-ment Bank is wooing Asia's major airlines to form a billion-dollar insurance pool to make up for higher insurance premiums caused by the September 11 terror attacks, which have hard hit the global airline industry, airline sources said.

However, Thai Airways International was not likely to join in the US$1-billion-dollar (Bt43.4 bn) mutual insurance pool, which would require a guarantee from the Finance Ministry, the sources said.

The news follows the annual presidents' meeting in Bali, Indonesia, last Friday of the Association of Asia Pacific Airlines. Members agreed to look at the possibility of setting up a mutual fund, proposed by the Manila-based Asian Development Bank.

The Asian Wall Street Journal, reporting from Denpasar, Bali, said the insurance pool marked the first effort by regional airlines to cope with the huge rise in insurance premiums since insurers cancelled hijack and war-risk coverage following the attacks.

"The insurers offered carriers substitute policies with much lower coverage levels and at much higher premiums. That led many governments to make up the shortfall for local carriers so they could meet insurance requirements set by airports and aircraft leasing companies," the paper said.

"Some airlines unable to secure such backing had to ground planes and even those that did win support have in most cases imposed new charges on their passengers to recoup costs."

According to airline sources, the mutual insurance pool would require a back-to-back guarantee from governments, or ministries controlling airlines. In the case of Thai Airways International, it has already received the Royal Thai Govern-ment's guarantee on its insurance premiums, which have jumped 200-300 per cent after the terror attacks.

A senior THAI official said: "We find it unnecessary to join this pool since we already get the government guarantee. If we join the pool, the Finance Ministry will have to provide a back-to-back guarantee, resulting, in effect, in the need to pay a fee to arrangers of this pool."

Privately-owned airlines such as Bangkok Airways or PB Air, which did not have the government insurance guarantee, were not expected to be able to join the pool either. "In the case of Bangkok Airways, they may probably need to pass the cost on to passengers," the official said.

Similar views were expressed by Thai general insurers at a seminar last week. They said the over-600-per-cent significant increase in aviation premiums had caused burdens not only for insurance companies but also the government.

A leading insurance company reliant on aviation policies said insurers would have to manage risks successfully to ensure compensation. However, they would face difficulty if their insurer networks overseas denied their aviation policy. As a result, local insurance companies would also deny coverage for aviation services if they found the risks were too high.

"We (insurance companies and re-insurers) have to find a way to introduce fair premiums which help balance our risks," he said.

The Journal quoted Richard Stirland, director general of the Association of Asia Pacific Airlines, as saying that member carriers would each contribute as much as $20 million. To expand the pool above $1 billion - as some airports or lessors would require - members would have to commit bank funds, including letters of credit or bank guarantees, he said. The pool would then pay out claims to participating airlines, Mr Stirland said.

Mr Stirland said the group, which has 18 members, would try to recruit non-members in the region to join the pool to bring down the financial commitment required of individual airlines. As it stands, the International Air Transport Association expects overall premiums paid by its members for 2002 coverage to increase sixfold from this year to at least $9 billion, even as many of them post large losses.

Mr Stirland said the pool would require "quite a substantial pool of money" but added "somebody has to start somewhere".

Thanong Khanthong,

Achara Pongvutitham



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