AIG, Chubb, Markel, Swiss Re and Zurich are potentially liable for Thomas Cook repatriation and refund costs as they provide shortfall insurance for the Air Travel Organiser’s Licence’s (Atol) primary source of funding, The Insurance Insider can reveal.

The Air Travel Trust (ATT) fund is the main source of funding for Atol, a financial protection scheme for package holidays backed by the UK government and managed by the Civil Aviation Authority (CAA). In its latest financial report for the year ended 31 March 2018, the ATT stated that it had a surplus of £170mn ($210mn).

The ATT fund derives from Atol licence holders paying £2.50 for each person who books air travel covered by Atol.

The ATT’s latest report said the fund had insurance cover with a £400mn annual limit. Sources said this “shortfall insurance” was provided by a panel of insurers including AIG, Chubb, Markel, and Zurich. The cover means there is around £570mn in place in total to meet refund and repatriation costs for any Atol holder failure.

Swiss Re does not sit on the panel but reinsures part of the policy.

Willis Towers Watson is also understood to have brokered part of the placement.

The ATT’s policy was renewed on 30 April 2018 and provides cover until 31 March 2020, when it is up for renewal, the report stated.

According to the ATT, the policy is triggered when costs arising from refunds or repatriations exceed £10mn, £70mn or £150mn in a policy year, with different thresholds applicable depending on the size of the tour operator.

In its report the ATT said that there had been no claims on the policy since 2017, but sources told this publication there had been no claims since its inception in 2007.

There is still uncertainty about the final repatriation bill but, in a statement to the House of Commons Transport Secretary Grant Schapps said that the Thomas Cook repatriation effort will cost around £100mn – twice the size of the Monarch Airlines collapse which cost the taxpayer around £50mn.

According to the Financial Times, the government has also said the cost of refunding future bookings will be around £420mn.

It is thought that the Thomas Cook collapse will severely deplete the ATT fund, with some sources saying it could wipe it out completely.

In the case of fund exhaustion the government would likely be forced to provide assistance, possibly in the form of a loan, to mitigate the cost of repatriation operations and to ensure that protection is in place for future collapses.

The CAA has denied that government intervention with taxpayer money would be necessary, saying that its insurance pot is healthy and that a credit facility could also be used to make up the shortfall.

CAA CEO Richard Moriarty said that the refund programme for the 360,000 future holidays booked through Thomas Cook was three times larger than any refund programme it had ever managed before, and it was putting new systems in place to process refunds as quickly as possible.

He added that around 100,000 bookings were made by direct debit and that these would be refunded in 14 days whereas other payments would take longer, but that an online system would be launched on 7 October to manage those claims.

Direct debit and credit card companies could also have exposure to surety losses as they facilitated payment for the package holidays.

Sources also told this publication that Zurich and Swiss Re could also be exposed to losses for Thomas Cook’s German subsidiary and its affiliate tour operator Condor, which is 49 percent owned by Thomas Cook.

Condor was granted a EUR380mn ($414.8mn) bridging loan from the German government, which will allow it to continue operations until a buyer is found.

Thomas Cook GmbH filed for insolvency last Wednesday and said it would restructure its business independently.

A Zurich spokesperson told this publication that the maximum amount of contractual obligations to Thomas Cook in Germany was EUR110mn.

Parent company Thomas Cook filed for insolvency on 23 September after it failed to secure £250mn rescue deal and the government refused to bail out the business.

Following its collapse, the CAA launched the largest ever peacetime repatriation effort to bring the estimated 150,000 UK holidaymakers home.

According to the CAA more than 100 aircraft have been used for the operation.

As of 1 October, over three quarters of the holidaymakers, or 115,000 people, had been returned to the UK, with around 94 percent having flown on their original departure date.

The repatriation will continue until 6 October, with more than 1,000 flights planned.

A Zurich spokesperson confirmed that the insurer is one of number of carriers that covered the ATT fund through a surety policy, adding that they were in the “process of assessing the net impact after reinsurance for the group”.

A CAA representative said the state agency did “not want to speculate on the likely impact on the ATT fund of the collapse of Thomas Cook” as the final figure may not be known for many months, until all outstanding claims are processed.

AIG, Chubb, Markel, Willis and Swiss Re declined to comment.

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