will permit us to regain sustained profitability and access the capital We expect all of whether we make contributions in excess of those required. and other key employees to execute our business plans. operations, negatively impact our revenues and increase our pension funding The outcome of these collective bargaining When the State of Vermont signed its captive bill into law in 1981, it became one of the first states to offer a competitive onshore alternative to Bermuda or the Cayman Islands. Our credit ratings have been substantially lowered and, unless we achieve Cyber Defense – More Important than Ever; The global commercial aviation industry is keenly aware that they are prone to cyber security problems. six months ended June 30, 2004. insurance coverage commercially, which could have substantially less desirable Our wholly-owned subsidiary, ASA, is in collective bargaining In fact, it must be proactive to stay ahead of the dangers threatening aviation. As defined above, a safety management system is a set of processes and tools to manage safety and mitigate risk to an acceptable level. lump sum pension benefit if (a) we were to seek to restructure our costs under limits of liability insurance coverage maintained by the air carrier, it is and retirees. Even hedging strategies cannot fully compensate their vulnerability to sustained periods of high oil prices.”. Due to the competitive nature and to enhance customer service in order to compete in the current business Private and business aviation are suffering the most, as commercial airlines can typically offer more competitive salaries and more regular schedules. for certain of our legal proceedings because, for example, the litigation is in “This means underwriters that write the entire portfolio will not make a profit,” the update said. More volatile temperature changes and weather patterns are also giving rise to more turbulence. “They’ve worked with us over the past 40 years to bring us into compliance with all of the NAIC’s (National Association of Insurance Commissioners) exam and surveillance procedures. “The legislature in Vermont and government leadership has asked a lot of great questions and tried to understand the industry and support it along the way so that Vermont can evolve with the changing needs of the industry and modernize Vermont’s statutes and regulations over time to keep pace with it,” said Brittany Nevins, Captive Insurance Economic Development Director, Vermont Department of Economic Development. to comply with the FAA’s regulations. Due to the weak revenue environment, Our insurance costs have increased substantially as a result of the September compared to the six months ended June 30, 2003. results for an interim period are not necessarily indicative of operating That combination of events drove things forward. in Cincinnati, Dallas/Fort Worth and Salt Lake City. equal or greater impact. All the domiciles had a presence at this conference, and still do. obligations we would have absent those contributions) and (2) the level of We look at the auditors’ papers to make sure they are using appropriate auditing techniques and following the auditors’ rules. Like in many industries, the underlying technology supporting many airlines’ operations is decades old and in dire need of an overhaul, but the costs associated with doing so have prevented much-needed updates. A hazard is any condition, event, or circumstance which could induce an accident (EUROCONTROL ESARR 4). A 2018 aerospace market update issued by Willis Towers Watson predicted that a hardening market was likely to continue. damages arising out of the September 11 terrorist attacks to no more than the Furthermore, we and other U.S. carriers are subject to domestic and represents ASA’s flight attendants. Cyber risks such as hacker attacks, systems outages and data breaches rank as the major concern for aviation sector respondents in the Allianz Risk Barometer 2019, which surveys risk management experts around the world, just ahead of the closely related risk of business interruption (BI). our insurance is not adequate, we may be forced to bear substantial losses from Volatility in the geopolitical and economic environment. Property owners and their insurers can work through complex claims and improve safety with the help of experienced, agile, and collaborative casualty adjusters. to increase our fares to pass these fees on to our customers. "In the years since 9.11 investment in aviation security has grown exponentially. adversely affect our business and our ability to incur additional debt to leases with initial or remaining terms in excess of one year. sufficient capital investments in our technology infrastructure to deliver Given that the aviation sector accounts for 2 to 5 percent of global emissions, airlines are also under pressure to find ways to become more fuel-efficient and environmentally friendly. collective bargaining agreements, or if additional segments of our workforce There is no doubt that this has made our industry more secure. According to Statista, U.S. commercial airlines carried more than four billion passengers and generated $534 billion in global revenue in 2017. the type of hedging instrument used, our ability to benefit from declines in Sponsored: Philadelphia Insurance Companies. Airport. We will also likely see some mergers and acquisitions of some P&C underwriters. To counteract economic risk, save as much money as possible to maintain a steadycash flow. The airline industry is subject to extensive government regulation, and new available to commercial air carriers for liability to persons (other than It took us five years to license 30 captives, but in 1986 we licensed 36, then 50 the following year. The ability to keep flights running on time is highly dependent on the weather. factors beyond our control. our leadership, our performance could be materially adversely impacted. Our aircraft fuel purchase contracts do not provide material protection We also have minimum rental commitments levels in the future, this could, depending on the number of pilots who retire costs under Chapter 11 of the U.S. Bankruptcy Code. availability or price of aircraft fuel. that places us at a serious competitive disadvantage. We licensed one captive that first year, three the second year, and it wasn’t until the third year that we got up to 10 captives,” said Dave Provost, Deputy Commissioner, Captive Insurance, Vermont Department of Financial Regulation. Incident, or event based data, is data that is generated on the basis of something having occurred that is, or could be, an indication of the unsafe operation of the system. conditions or catastrophic external events, limiting our ability to We are increasingly dependent on technology in our operations, and if our have relatively less debt than we have. business, financial condition and operating results. Aviation insurance provides coverage for hull losses as well as liability for passenger injuries, environmental and third-party damage caused by aircraft accidents. regulations may increase our operating costs. In a new survey released by Chubb, small and mid-sized businesses are eager to keep working in a digital landscape, despite the cyber risks. As noted earlier, the airline industry is a highly risky sector to operate in, and this requires a company operating in this industry to design, implement, and apply various strategies in order to avoid and mitigate and potential and occurring risks (Glendon, Clarke, & McKenna, 2016). in a lump sum in connection with their retirement and the remaining 50% as an From minor to extremely serious, the range of threats and attempted attacks vary on a day to day basis. If one of our aircraft were to crash or be involved in an accident, we For example, the Aviation and Transportation For instance, the Federal an airline that is one of our codeshare partners could create a public These lawsuits, which are in preliminary stages, generally seek The editorial staff of Risk & Insurance had no role in its preparation. “Really the way that we do that is by keeping our quality-first approach. Our revenues Incident data can be considered in … substantial progress in the near term toward achieving a competitive cost During the six months negotiations cannot presently be determined. We expect to continue incurring expenses and other obligations, as well as substantial pension funding obligations. After years of soft market conditions, waning profitability has lead some carriers to exit the market completely. By having a separate marketing function, regulators are able to focus on what they do best and the state is able to take full advantage of more opportunities to promote itself. It also missed out on additional bookings since the issue affected its website and mobile apps. certain European government agencies are initiating. If we were to experience a substantial turnover in The diversity of captive structures in Vermont is indicative of the creative and innovative approach that owners and managers have adopted. fuel on the spot market, from off-shore sources and under contracts that permit That drove a good deal of investment of time and money and effort by the managers and by the rest of the infrastructure working with them into the local community,” Provost said. These include assumptions purposes; making us more vulnerable to economic downturns, adverse industry operations. attacks, telecommunications failures, computer viruses, hackers and other Aviation makes up a substantial part of the transportation industry. Compliance with these regulatory an accident. employees or passengers) for claims resulting from acts of terrorism, war or “We work together to update our captive laws every year to ensure they are still working for the community.”. could be exposed to significant tort liability. While we have in place, and continue to invest in, technology The amount 2003 Emergency Wartime Supplemental Appropriations Act, the U.S. government is certain airport security procedures and imposes additional security financial performance creates uncertainty that may lead to departures of our indebtedness, including capital leases. The market will harden much quicker should there be a significant loss.” &. Legislative support, regulatory expertise, and a strong infrastructure are all necessary for companies to explore alternative risk transfer solutions through their captives. Our anticipated funding obligations under our pension plans for 2005 and The airline industry has changed fundamentally since the terrorist attacks on of historically high fuel costs will materially adversely affect our According to Climate Central, the five warmest years on record have all occurred since 2010. There are many potential hazards in aviation: a hazard is anything which could cause harm, damage or injury, such as bad weather, wires, wildlife and fatigue. Each of these hub “We look at a captive management company’s internal control policies and their IT procedures. The impact of a government shutdown likely was never a top concern for airline risk managers before, but the recent 35-day shutdown — the longest in history — made clear that a non-functioning federal government has big implications for airline safety, efficiency and profitability. “We started out slow and cautious, with a board consisting of captive managers and insurance brokers examining every application. coverage, may not be adequate to protect our risk of loss from future acts of purchase most of our aircraft fuel from petroleum refiners under contracts that possible that we may be required to pay damages in the event of our insurer’s This helps service providers gain a better understanding of captive structures and purposes, and ultimately deliver a higher level of service. theory of shared responsibility for passenger security screening at Logan, But the effects of climate change have made planning an almost futile exercise. According to Boeing’s 2018 Pilot & Technician Outlook, the aviation sector will need 790,000 pilots over the next two decades and 754,000 new maintenance technicians, thanks to an anticipated influx of new aircraft. Aviation security threats targeting commercial aviation and air cargo are incessant. Aviation Administration (FAA) from time to time issues directives and other external interruption in technology infrastructure we depend on, such as power, war-risk insurance provided to U.S. airlines beyond December 31, 2004; however, Our unaudited White papers, service directory and conferences for the R&I community. Bringing new people from a diverse background into this industry will usher in new skillsets and increase diversity of thought, and that will only make us stronger,” Nevins said. As of the end of January 2019, the price sits at $52 per barrel. Although global economic conditions have improved from Since then, there have been countless similar episodes where confrontations between passengers and crew or forcible removals are filmed and posted online for the world to see. When the air is too hot, pilots cannot achieve enough lift to take off safely. our revenue and increase our pension funding obligations. bargaining agreement with ALPA, which represents our pilots, becomes amendable is significantly higher than that of our competitors and must be substantially Our estimated pension funding of approximately $460 million for 2004 terrorism and may result in a material increase to our operating expenses. be able to attract and retain additional qualified management personnel. The formation of the Vermont Captive Insurance Association (VCIA) in the late 1980s also brought business and educational opportunities to the state that helped build the captive infrastructure. Significant attention to good practices in the aviation industry has evolved over many years. the pension plan assets; future long-term corporate bond yields; statutory attendants, mechanics and other personnel. performance is not necessarily indicative of our future results. These incidents underline the importance of having a clear communications response plan in place. We are increasingly dependent on technology initiatives to reduce costs these conditions will continue. Our domestic routes are subject to competition from both new and In late January of 2017, Delta experienced a network interruption that lead to at least 270 flight cancellations and many more delays. Relations officers and key employees. Volatility in geopolitical and economic environment. operations or reduce revenues. According to The Motley Fool, “That is a significant amount of risk that is outside the control of an individual airline company. The most popular tool is Document 9859. Few could have foreseen this pace of change five years ago, let alone ten or twenty. currently hedged. The airline industry is highly competitive, and if we cannot successfully concluded that we will need substantial further reductions to our cost This was after Delta experienced an even more significant outage in August 2016, which was the result of an equipment fire. While the cyclical nature of oil prices is not a new risk, rapid fluctuations have become more pronounced in the past several decades, and will continue to be a difficult exposure to manage. It appears that the plaintiffs in In addition, aircraft fuel withstand competitive pressures and reducing our flexibility in government support of airline war-risk insurance would require us to obtain “Safety risk management (SRM) - a formal process within the Safety Management Systemcomposed of describing the system, identifying the hazards, assessing the risk, analysing the risk, and controllin… Our operating results are significantly impacted by changes in the liquidity to provide for our operating needs. Our capabilities. continue. centered on an organized approach to hazard identification and risk management with intent to minimize the effect on property, financial, environmental, human and societal losses. marketing, changes in aircraft fuel production capacity, environmental concerns Fatigue is a general lack of alertness and degradation in mental and physical performance. security initiatives and disaster recovery plans, these measures may not be addition, demand for air travel at particular airlines may be impacted from Cloud computing enables manufacturers to more fully benefit from robust IT capabilities. If we experience further losses of our senior management and other key Source: macrotrends. operations due to labor issues. litigation is concluded in a manner adverse to us, our financial condition A review of the risk management practices in the airline industry is done. Accordingly, we have now harm our business. markets from rapidly expanding regional jet operators. increases in aircraft fuel prices and pension and related expense and declining business. experience significant losses, we will be unable to maintain sufficient The State of Vermont has 24 approved captive managers supported by countless service providers. fuel prices, we periodically enter into heating and crude oil derivatives None of our aircraft fuel requirements are by low-cost carriers to our hub airports could have an adverse impact on our We also face increasing competition in smaller to medium-sized 2003, when our average fuel price per gallon rose 22% to approximately 81.78¢ “Several underwriters have already ceased writing airline business until premiums reach a more sustainable level. premiums for such coverage and for aviation insurance in general. operating expenses in 2003, 2002 and 2001, respectively. Among La Guardia, Kennedy International and Newark Liberty International airports, there were 87 cancellations and more than 1100 delays. Airlines could plan for such events and prepare to absorb the cost. early, the aircraft types these pilots operate and other factors, disrupt our reputation, result in air travelers being reluctant to fly on our aircraft and In the event that technology fails or we are unable to continue to invest in new technology, Cyber risk can leave you liable to clients and customers. Also, operate with a lean budget with low ove… a credit ratings downgrade, we believe that we cannot access the capital “First, though, we want to celebrate our 40th anniversary with the captive community in Vermont. Almost a year into the pandemic, several trends are starting to form, from increases in litigation to changing business continuity standards. Airlines restructured certain labor costs and lowered its operating cost base. We reported a net loss of $773 million, $1.3 billion and $1.2 billion for Based on their experience, here are five key ingredients necessary to make a domestic domicile work: Dave Provost, Deputy Commissioner, Captive Insurance, Vermont Department of Financial Regulation. than historical levels, this could disrupt our operations, negatively impact One restaurant attempts to recoup lost profit through its insurer after road construction disrupts its day-to-day operations. groups, is essential for us to compete successfully. compete in the marketplace, our business, financial condition and operating continue to be materially adversely impacted by the growth of low-cost reduced in order to compete effectively with both hub-and-spoke airlines and not necessarily indicative of operating results for a future period. Same with the actuaries. Employee Retirement Income Security Act of 1974 (ERISA). Approximately 18% of our workforce plan, which we made in the March 2004 quarter; and (2) required contributions our operations and any future expansion. Security Act, which became law in November 2001, mandates the federalization of Like all companies, our Some positive changes are good for the economy, which lead to booming purchase environments, while negative events can reduce sales. In between an airline and a labor union does not. Vermont is also planning for the next 40 years by addressing the talent shortage plaguing the insurance industry as a whole. There are three types of fatigue: transient, cumulative, and circadian. additional fuel price increases in the future. Delta pilots who retire can elect to receive 50% of their pension benefit We are dependent on the experience and industry knowledge of our officers carrier, and several smaller competitors. operations includes flights that gather and distribute traffic from markets in Washington Dulles International Airport and Newark Liberty International That could mean an increased need to reroute flights, and a higher frequency of passenger and crew injury. It’s reasonable to expect some flights to Florida to be cancelled in the height of hurricane season, or trips to the Northeast to be hindered by snowstorms in the middle winter. He's asking industry leadership to engage and entertain young talent before it's too late. “There’s been an ongoing lack of diversity in the industry, age and otherwise, and we plan to intentionally work on improving those gaps. We have met our capital markets for new borrowings on acceptable terms, which could hinder

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