Insurance Office of America

Aerospace Quarterly Spring 2007 Newsletter

If you have questions or comments regarding this electronic publication, please contact John Averill, Vice President, Insurance Office of America at 800-535-4305, extension 2314 or john.averill@ioausa.com.

Aerospace Quarterlyis a quarterly report that is produced by the aerospace division of IOA. The scope of this report is to provide insurance purchasers of professionally flown and non commercial use turbine/jet aircraft the prevailing insurance market conditions within the U.S. and International insurance market.

Most underwriting companies are aggressively seeking to retain their preferred existing clients and acquire new clients that are operating desired types of professionally flown turbine/jet aircraft, provided they have a positive operating history and have a demonstrated ability to successfully manage their own risk internally. Several of the underwriting companies have adopted the position of not quoting older aircraft and still very conservative with single pilot operations. Depending on the specifics of the individual insurance purchaser, the age requirement of the aircraft appears to waiver with the appetite of the underwriting company. Several companies are no longer looking to quote aircraft that are in excess of 17 years of age.

With the entrance of a couple of new insurance companies into the market, some new coverage enhancements are being introduced to preferred clients. The level of competition among insurance companies also continues to maintain downward pressure on premiums. Depending on the previous position of the policy holder and the specifics of the risk (single pilot operations, older aircraft and mixed use of commercial and non commercial) in the market place, it is not uncommon to see reductions in premiums from the prior year. Some of the insurance companies are also becoming more interested in underwriting aircraft that are being used commercially, provided the operating environment is controlled and all parties involved have a positive operating history.

Many of the underwriting companies had reinsurance renewals at the first of the year. It is anticipated that the reinsurance market will continue to aggressively look for premiums thus creating more capacity in the market place. This will continue to drive premiums down for preferred risks. Historical trends (if history repeats itself) indicate that eventually the profit margins of the insurance companies will deteriorate to the point that reinsurance will tighten and premiums will begin to rise. The timeframe on this will depend on industry results.

As an enhancement to Aerospace Quarterly, we will feature a particular aspect of risk management or a non insurance oriented product that is also available in the market place. 

Below you will find an offering that was produced by the Private Client Practice of Merrill Lynch regarding their Business Aircraft Financing capabilities. IOA does not endorse or suggest this offering. We are simply educating our clients regarding various financing alternatives available in the marketplace. Thank you to Paul J. Landaiche, Jr., Resident Director of Merrill Lynch’s Global Private Client Group, for providing the information that follows.

Business Aircraft Financing through Merrill Lynch offers innovative and flexible business aviation financing and leasing solutions to all levels of corporate users and individuals throughout the United States and in many countries around the globe.

Also, Merrill Lynch can offer a financing solution unique in the industry, which expands the flexibility of your Aircraft Financing options – the Loan Management Account®. The LMA account features:

The objective at Merrill Lynch is to guide aircraft owners toward understanding the financial ramifications of their decisions and to provide integrated advice and solutions beyond traditional investments. The decision to purchase an aircraft (private jet) or any other luxury aircraft is often driven by a passion. The next time you think about making those purchases, you may want to consider using the Merrill Lynch Loan Management Account® (LMA account®) to assist in financing them. The LMA account is a cost-effective alternative to selling assets, depleting personal or corporate cash reserves or disrupting your carefully designed financial plans.

Here is an example of using a Merrill Lynch LMA account:

Mr. Smith, a Merrill Lynch client, wishes to purchase a jet aircraft, priced at approximately $5,000,000. Typically, Mr. Smith would either liquidate his assets to procure cash for the transaction, consider financing through the manufacturer, or consider a traditional bank loan and put a fixed percentage down immediately.

With the Merrill Lynch Loan Management Account®, Mr. Smith can leverage his business or personal portfolio of securities to collateralize the loan for the jet - in whole or in part. The funds are available whenever he needs to purchase the aircraft as he sees an attractive purchase. He will pay no annual fee, nor be required ever to utilize the loan should he not need it. His assets continue to provide income and growth and he can control the allocations and investment direction of his portfolio with his Merrill Lynch Financial Advisor. If Mr. Smith's portfolio is sizeable, the more assets that he pledges to secure the loan will lower his interest rate, even though he does not need to activate the full purchasing power his assets would afford. There are no appraisals, no other collateral needed and he can even roll interest payments past one month as he needs. And, the LMA account works seamlessly with the lease or term loan.

The objective of Merrill Lynch is to help aircraft owners to understand the financial ramifications of their decisions and provide integrated advice and solutions beyond traditional investments.

To learn more about how Merrill Lynch can assist in helping you pursue an appropriate financing structure, please contact:
Paul J. Landaiche, Jr., CFM
Resident Director, Assistant Vice President, Senior Financial Advisor

Merrill Lynch Global Private Client Group
2611 East Oakland Park Boulevard, Ft. Lauderdale, Florida 33306

(954) 390-7210
(954) 565-2593 FAX
(800) 456-7957 Toll Free

This report has been published by the Aerospace Division of Insurance Office of America