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Airline Insurance
Market Outlook 2012
Overview
Contents. Overview.
The aerospace industry continued to defy gravity during 2010, continuing a trend laid down in 2007.
Airline Insurance
5 6
Overview
Executive summary Overview Airline reinsurance market 8 9 16
Analysis
Regional analysis Sector analysis Fleet value analysis 20 27 32
Analysis
Quarterly/monthly data
18
Overview
Overview
Airline Insurance
Foreword
The airline industry quietly delivered an exceptional claims year in 2011, with the lowest amount of claims, the lowest number of fatalities and the lowest number of incidents since at least 1995.
This is a cause for celebration across the industry, but there are a number of reasons why it may not instantly lead to the cost of airline insurance to plummet, not least of which is that 2011 is likely to have been only the second time in five years when underwriters will have seen a positive return on their airline books. That said, the low level of claims will help ensure that insurance market capacity is healthy in 2012, particularly in comparison with some other sectors where natural catastrophes may have had an impact from an insurance point of view. In the end, the level of risk that the airline industry presents continues to improve from a technological and safety management point of view, but in terms of the insurance markets, this is very much an evolution. A single year with phenomenally low level of claims does not mean that the next year will be the same, because the level of risk does not change over night. Our role as an insurance broker is to help clients understand current market conditions and help them to communicate the unique elements of their insurance programme to underwriters to ensure they are as efficient as possible. This report forms a key part of that process. If there is any part of this report that you would like to discuss in more detail, please do not hesitate to contact us. Peter Schmitz Chief Executive Officer: Aviation, Aon Risk Solutions peter.schmitz@aon.com
Airline Insurance
Airline Insurance
Overview.
By pretty much every gauge, losses in 2011 were exceptionally low. While this is positive for 2012 trends, it follows two years where claims have exceeded previous records.
Airline Insurance
Executive summary
average lead hull and liability premium fell 3% average fleet values grew by 8% forecast passenger numbers grew by 7% total lead hull and liability premium was US$1.8 billion total incurred claims were US$522 million
Premium: Lead hull and liability premium fell by 3%, with the market softening as the year progressed. Total lead hull and liability premium was US$1.82 billion, compared to US$1.88 billion in 2010 on a like for like basis. In 2010 the actual premium was US$1.97 billion, but the like for like figure takes into account airlines that did not renew on a stand alone basis or those that fell beneath the criteria for inclusion in our data (see page 35). Rates: The underlying cost of insurance continues to fall with insurers prepared to trade risk exposure growth for reductions in rates. Claims: The final loss figure for 2011, excluding minor losses, is US$522 million, compared to US$1.59 billion recorded for 2010. Adding an estimate for minor losses, the overall loss total was US$1.13 billion, compared to US$2.10 billion in 2010 (see page 12).
Sector: Most of the sectors continue to conform to the global averages in terms of premium and exposure. Despite the positive claims year, the five year credit balance has deteriorated for flag, international and regional carriers, generally the result of minor claims as well as the evolution of premium levels (see page 27). Fleet: Exposure growth is strongest for airlines with a mid-range AFV of US$1-2 billion, which has also achieved an average lead hull and liability premium reduction (see page 32). Capacity: Capacity is expected to remain healthy in 2012. The over supply of capacity should keep in check any upwards price pressure due to potential losses but in reality, the majority of airlines have already used the greatest advantages of over supply and the remaining uninvolved capacity has a low appetite for current pricing.
Overview
Region: The different recovery rates of economies around the world are being reflected in the airline insurance data, with Asia Pacific, Latin America and the Middle East all reporting strong exposure growth forecasts while AFV continues to decline in North America (see page 20).
Airline Insurance
Overview
At the end of 2010, underwriters were attempting to be firm in their strategy. Industry premium needed to at least break even with the level of average five year losses even before fixed and reinsurance costs were taken into account. Given that programmes are traded in a free market however, prices continued to soften as 2011 progressed.
This culminated in an average Q4 5% reduction in premium. This was the first quarter since 2008 when lead hull and liability premium on average fell, with reductions driven by the low level of claims and the healthy availability of capacity. Our statistics are based on the lead insurer premium terms as this provides fair comparison and the composite terms are impossible for an intermediary to record with any degree of accuracy. It should be pointed out that the lead price is not always followed by the other insurers that are involved in the programme and as a result, to complete the risk, higher prices sometimes need to be paid. Following insurers continue to take a tougher stance on distressed programmes. While this may seem unscientific when distressed programmes tend to pay rates far above market average, it reflects the forces of supply and appetite in the insurance market. It should also be pointed out that in 2008, the last year when lead hull and liability premium outweighed claims, the difference was so close that that any potential profit would have been swallowed up by fixed and reinsurance costs. As a result, the airline insurance market is only likely to have been profitable once in the last five years.
Airline Insurance
Number of incidents
50
As a result, while underwriters will be quick to applaud the industrys 2011 achievement, they continue to write against historical loss levels of around US$2 billion per annum. This highlights the challenge of profitable underwriting. Insurers labour the fact of the rising cost of claims and the probability that an average year of claims will produce a trading loss at current levels of premium. It is important to be reminded that many insurers write broad portfolios of aviation products and reinsure on a whole-account basis. Life is better overall than the specific airline market suggests. There has been a great deal of discussion about the effect of the natural catastrophes in 2010 and 2011 on the cost of underwriters own reinsurance purchasing, but so far there is little evidence of prices rising at this stage (see page 16).
25
Average, 1995-2011
10
Overview
After four years where premium is estimated to have outweighed claims, the majority of airline insurers will have enjoyed healthy returns in 2011 given the low level of claims, effective strategy, risk selection and good fortune.
100
75
Airline Insurance
100
2.5
-US$0.47bn
75
Percentage Change
US$ billion
2.0
50 25
1.5
1.0 0.5
0
0.0
-25 2000
2007
2008
2009
Claims
2010
2011
2002
2004
2006
2008
2010
2,000 1,250
750
Number of fatalities
Number of fatalities
1,000 750 500 250 0 1996 1999 2002 2005 2008 2011
500
250
0 Jan
2010
Apr
2011
Jul
Oct
Average 1995-2010
11
Airline Insurance
2,000
1,500
US$ millions
1,000
500
0 Jan
2010
Apr
2011
Jul
Oct
Average 1996-2010
This was mainly a result of airlines ceasing operations, consolidating, seeing their average fleet value (AFV) drop below US$150 million (the threshold used for inclusion in this data set, see page 35 for details), joining or exiting group placements or no longer insuring their programmes within the recognised international airline insurance markets. The number of airlines that have come out of the data is 35, mainly the result falling AFV, 12 organisations, joining group placements, 11 organisations. Seven airlines formerly in our data have ceased operations. At the other end of the scale, 23 airline insurance programmes, totalling just over US$132 million in terms of lead hull and liability premium, have joined the data. This is dominated by 15 airlines, representing
1,500
1,000
500
12
Overview
US$42 million of lead premium whose AFV forecasts climbed above the US$150 million mark. The remainder is comprised of six airlines that have left group programmes, representing US$38 million, two airlines consolidating and a solitary new carrier.
Airline Insurance
40
50
35
40
30 30 20 25
10
According to Ascent Worldwides data, there were 1.8 billion aircraft departures in 1995, a number which grew to nearly 2.9 billion in 2011. Adding Aon loss data to this gives an average number of fatalities per million departures of 19.93 between 1995 and 2010. The lowest in a single year prior to 2011 was 2004 when an average of 9.5 fatalities per million departures was reported. Last year, there were only 4.61 recorded fatalities per million departures. Similarly the average number of fatalities per million passengers carried was 0.29, and the previous lowest 0.14. The figure was drastically lower in 2011 with 0.06 recorded fatalities per million departures. The airline industry will rightly broadcast the very positive 2011 as the result of the high levels of investment in technology, quality and safety and industry standards. Ground handling and airport services should also be commended for their necessary contribution to the improvement loss statistics.
Flights (millions)
20 1995
Flights (millions)
There were 175 aviation fatalities worldwide in 2011, compared to 623 on average. There were only four fatalities in Europe covered under standard hull and liability insurance policies, and none in Africa. No region had more than 70 fatalities and there was only a single incident involving more than 30 fatalities. The total annual value of claims in North America and Europe was under 20% of the long term average. Worldwide, claims were 45% of the long term average.
13
Airline Insurance
The trend of increasingly aggressive forays into the aerospace and general aviation segments has only served to further soften market-wide aviation prices. We are also witnessing insurers (re) entering geographies or products from which they had previously withdrawn deeming pricing to be inadequate. Evidence of this flow of capacity at a micro-market level can be seen risk for risk. On a macro level, the aerospace and general aviation markets are also benefitting as a premium source to substitute airline loss in premium. Just to keep the positive note for buyers, underwriters are aware of the much rumoured news of new capacity entering the market. The greatest effect will be if this takes place in the direct rather than through the reinsurance market.
14
Overview
Whatever insurers debate between technical and commercial pricing, one thing is certain: if you are in the market, you have to write business to meet targets. The question is which portfolio and how broad or selective it should be. Insurers are looking at new areas to grow their business and make up for premium leaking from their airline book.
Airline Insurance
It should be pointed out that there is an unusual conflux of economic circumstances for North America as well as ultimately the fact that the region is already very mature from an aviation point of view, particularly in comparison with the Asia Pacific market, which has been enjoying a giddy period of growth over the last decade. For the latest analysis of airline insurance market trends, please go to www.aon.com/aviationinsight.
2011 3% 2010 2%
22%
8%
9%
8%
3%
3%
15
Airline Insurance
The airline reinsurance sector has been relatively stable over the last year, with only the Reno Air Show loss causing concern. As a result, the picture for 2012 is fairly positive at this stage.
In a stable reinsurance market, programmes are renewed with similar deductible levels and vertical limits of cover and, in the absence of any major loss activity, this should continue throughout 2012. Capacity is abundant for all areas of the business and there is no reason to anticipate any change in the short to medium term. Due to the lack of any major claims in the airline and aerospace sectors, excess of loss risk adjusted rates for contracts which renewed during the last quarter of 2011 softened by around 7.5%. The January 1, 2012 reductions varied between zero and 10% as reinsurers differentiated clients by acknowledging exposure changes and the potential for any excess of loss recoveries arising from the Reno Air Show loss. The Reno loss has also had an effect on the wider excess of loss market as reinsurers were surprised at the quantum of loss from a general aviation risk, highlighting the differential line structures for their clients airline and general aviation accounts. Despite increasing exposures, the total cost of excess of loss reinsurance in 2011 continued to fall and the overall spend of the 30 largest insurers was around US$325 million, a 7.5% drop from the previous year. The unprecedented natural catastrophe losses of 2011 have yet to have any effect on aviation reinsurance capacity or prices. Underwriters buy reinsurance for their entire portfolio including airline, aerospace and general aviation. Given that, with the exception of the Reno loss, all three areas of the business were healthy in 2011, and as a result, discussions about the challenges that face reinsurance programmes could be suggested to be something of a distraction.
Analysis.
The fantastic claims result in 2011 has had ramifications across the airline industry. The challenge is delivering results in 2012 to prove that the industry has achieved a genuine reduction in risk.
Airline Insurance
Quarterly/monthly data
Conditions softened as the year progressed, influenced by the play in market capacity and the low level of claims in the industry
Total Renewals 2010
Jan Feb Mar Quarter one Apr May Jun Quarter two Jul Aug Sep Quarter three Oct Nov Dec Quarter four Total/Average 2 2 7 11 19 19 12 50 35 6 6 47 14 37 65 116 224
2011
3 4 7 20 14 16 50 31 7 6 44 13 38 62 113 214
% change
+45% +7% +14% +14% +10% +1% +7% +8% +10% +47% +7% 0% +8% +5% +5% +6%
2011 (US$m)
5.03 12.65 17.69 124.48 66.75 54.21 245.44 232.81 41.57 26.23 300.61 148.39 233.98 869.17 1,251.54 1,815.28
% change
+27% +6% +11%
+8% +2% +1% -3% +22% +11% +1% -5% -11% -4% -5% -3%
18
Analysis
-4%
Airline Insurance
The fourth quarter renewal season remains frenetic, however less than 70% of the markets premium was placed during the period. At the beginning of the century, 80% of premium was placed during the final three months of the year, but this has been eroded since 2004. There are a number of attractive arguments both for renewing in the final quarter and renewing during the first nine months of the year, but at this stage there is
only a very gradual tide in favour of renewing during the first three quarters when underwriters have the time to discuss a renewal programme in detail. Some airlines have taken out an option to extend their placement, but there have been few to that have taken it up at this stage. Placing insurance is part of an airlines wider financial strategy indicating Q4 remains as a strong preference.
Q1 11 1% Q2 11 13%
Q1 11 3% Q2 11 23%
Dec 11 29%
Dec 11 48% Q3 11 17%
Nov 11 18%
Q3 11 21% Oct 11 6%
19
Airline Insurance
Regional analysis
The global economic travails have been keenly felt in the airline industry. On average premium has declined in the majority of regions, but the reasons have been different according to economic performance.
Latin America Asia Pacic Total/Average Europe North America Africa Middle East -15%
-13% -8% -5% -3% -4% 1% 3%
-10%
-5%
0%
5%
Percentage lead hull Aon market data and liability premium change by region 2011 Source:
Latin America Middle East Asia Pacic Europe Total/Average Africa North America -4% -5% -5% 15%
7% 6% 6% 10% 14%
18%
Latin America Asia Pacic Middle East Europe Total/Average North America Africa -4% -5% 5% 15% 25%
0% 13% 10% 9% 8%
33%
35%
Source: Percentage passenger Aon market data projection change by region 2011
20
Analysis
Airline Insurance
Africa
2011 claims
19952010 average
Number of incidents Value of claims (US$m) Number of fatalities 9 114 119
Percentage Change
Premium
AFV
Passenger
2010
2011
12 402 174
4 66 0
2008
2011
2011
17 102.07 19,405.76 49.36 985.29 2.07 -85.09 33.59
% change
+13% -8% +6% -4% +2% -4% -340% +8%
While the number of passengers being carried by African airlines is forecast to fall by 4% during the course of the 2011/12 renewal programmes, the total number is due to rise to 49 million as a result of operations growing to meet our criteria. In 2007, the number of passengers forecast to be carried was 33 million, so its growth to 49 million in 2011 suggests an industry in relatively good health. Seven of the 17 renewals that meet our criteria forecast an AFV increase of more than 20% during the course of their 2011/12 insurance programmes. The region has the second lowest average aircraft value, US$34 million per aircraft compared to a global average of US$37 million.
21
Airline Insurance
Percentage Change
Asia Pacific
2011 claims
19952010 average
Number of incidents Value of claims (US$m) Number of fatalities 18 289 205
Premium
AFV
Passenger
2010
15 508 370
2011
10 198 44
2008
2011
2011
57 513.73 266,327.25 909.73 1,300.53 0.56 693.80 57.33
% change
+8% +1% +10% +13% +2% -11% -43% +6%
The average value of an aircraft in the Asia Pacific region is just over US$57 million, compared to US$37 million on average. The high value of average aircraft reflects the significant fleet investment that has been made over the last five years, with the region one of two that is particularly active in the purchase of new generation wide-body aircraft.
22
Analysis
The growth of the airline industry in the Asia Pacific region continues, with passenger forecasts up 13% on average and AFV forecasts due to rise by 10%. There were similarly robust growth forecasts made for 2010/11.
Airline Insurance
Percentage Change
Europe
2011 claims
19952010 average
Number of incidents Value of claims (US$m) Number of fatalities 17 285 103
Premium
AFV
Passenger
2010
15 145 0
2011
8 54 4
2008
2011
Airlines in Europe enjoyed a reduction in lead hull and liability premium on average during 2011, despite exposure increases.
2011
66 508.07 217,492.40 870.75 979.70 0.58 -35.99 34.85
% change
-7% -4% +7% +9% -3% -12% +76% -1%
Passenger numbers are forecast to grow by 9%, but Asia Pacifics 13% increase means that Europe no longer has the highest number in the airline industry. Given the economic conditions, this is likely to continue in the short term at least. After climbing at the joint slowest rate in 2010 (2%), lead hull and liability premium has fallen by around 4% on average for 2011/12 airline insurance programmes.
23
Airline Insurance
Latin America
Percentage Change
Premium
AFV
Passenger
2011 claims
19952010 average
Number of incidents Value of claims (US$m) Number of fatalities 10 141 108
2010
10 205 78
2011
7 136 25
2008
2011
2011
18 101.91 24,336.58 146.26 984.72 0.70 102.61 35.12
% change
+3% +18% +33% +4% -22% +235% +39%
The exposure growth reflects the robust economic conditions in some countries in the region, with five of the 13 Latin American airlines that report forecasts suggesting that passenger numbers will grow by more than 20% during the course of 2011/12 insurance programmes. Given that the value of claims was around average in 2011 and the number of fatalities very low, it is unsurprising that five year credit balance in Latin America is much improved, at US$103 million compared to -US$76 million for 2010/11 placements.
24
Analysis
After a peak in 2009, average premium in 2011 in Latin America has risen by a relatively modest amount, despite projected passenger increases of over 40% as well as healthy AFV growth.
Airline Insurance
Percentage Change
Middle East
2011 claims
19952010 average
Number of incidents Value of claims (US$m) Number of fatalities 4 52 22
Premium
AFV
Passenger
2010
7 162 0
2011
3 27 66
2008
2011
2011
24 113.02 60,785.07 110.55 1,208.33 1.02 -59.90 82.89
% change
-8% -13% +14% +10% -2% -21% +75% +27%
After two years where lead hull and liability premium has been relatively high, Middle East based insurance programes enjoyed a healthly level of average rate reduction given the supportive factor of growth in risk exposures for 2011/12. There are a number of reasons for this, not least the economies of scale that airlines with large modern fleets tend to attract from underwriters. The average aircraft value in the Middle East is US$82 million, compared to US$37 million on average globally, and has risen by more than 25% since 2010/11 placements. Five year credit balance, while still in the red, has improved considerably since 2010. This regions statistics are influenced by one particular claim and that programmes subsequent price adjustment.
25
Airline Insurance
Percentage Change
North America
2011 claims
19952010 average
Number of incidents Value of claims (US$m) Number of fatalities 15 289 68
Premium
AFV
2010
8 177 0
2011
5 42 36
2008
2011
2011
32 476.49 167,193.60 786.89 1,249.22 0.61 774.17 22.54
% change
-16% -5% -4% 0% +6% -4% +7% -5%
There are a number of reasons for this, but of consolidation among the US majors plays a significant role, bringing with it restructuring and fleet rationalization. The position may change as 2012/13 insurance programmes are discussed, with new aircraft deliveries set to rise, particularly in the mid-range. North America now has the lowest average value of aircraft in the industry, although the high number of aircraft relative to the rest of the world is a major factor in this.T
26
Analysis
Economic conditions in North America have made this a challenging period for airlines in the region, with fleet value projected to continue to wear away during the course of 2011/12 insurance programmes.
Airline Insurance
Sector analysis
Despite overall premium reductions, exposure growth was prevalent across the airline industry for 2011/12 placements.
Total Renewals 2010
Flag International Low-cost Charter Regional Cargo Other Total/Average 63 24 36 37 43 11 5 219
Premium % change
+6% +4% -11% -22% -5% +18% +40% -2%
2011
67 25 32 29 41 13 7 214
2010 (US$m)
1,114.70 160.07 214.17 84.09 201.66 92.47 9.05 1,876.21
2011 (US$m)
1,050.97 160.83 210.98 83.11 212.18 87.50 9.71 1,815.28
% change
-6% 0% -1% -1% +5% -5% +7% -3%
% change
+6% +10% +8% -2% +7% +8% +21% +6%
% change
+5% +15% +12% +11% +15% NA NA +8%
27
Airline Insurance
7%
0%
10%
21%
Regional International
15%
15%
8% 8% 7% 6%
12%
11%
6%
Flag
5%
-5%
5%
15%
25%
0%
Source: Aon market data
10%
20%
28
Analysis
Airline Insurance
% change
0% +3% +1% 0% +4% 0% +4% +1%
% change
-11% -13% -12% -11% -9% NA NA -11%
2011
273.07 282.81 699.60 343.56 -249.27 12.32 27.51 1,389.60
Flag
Flag carriers have enjoyed relatively benign treatment from the airline insurance markets during 2011, with 66% of placements enjoying lead hull and liability reductions compared to an industry average of 54%. The reductions come in spite of relatively healthy exposure increases (while 6% AFV and 5% passenger increases appear relatively modest in comparison with some other sectors, given the size of the numbers involved, even a 1% increase is significant). The sectors credit balance deteriorated significantly. This was the result of minor incidents and historic claims being settled, rather than a disproportionate number of incidents (see page 12). As would be expected for flag carriers, the average aircraft value is slightly above the industry average at US$41 million per aircraft compared to an industry average of US$37 million the sectors AFV is more than the rest of the industry put together.
29
Airline Insurance
International
Despite significant exposure increases during 2011, lead hull and liability premium for the international sector has been flat on average, meaning that rates overall have fallen. The exposure increases have been fairly universal, with only six of the sectors 25 carriers forecasting a reduction in AFV, only three of which by more than 5%. This suggests that the sector is in fairly rude health, despite the challenging economic headwinds. It potentially reflects the sectors position as enjoying many of the benefits of flag carriers in terms of economies of scale and bargaining power with both the insurance markets and more widely without the involvement of government. This forces them to be more efficient and innovative and removes some of the funding uncertainties that must be being discussed as governments in many parts of the world respond to fiscal constraints. The sectors average aircraft value is second only to the others sector, which is mainly comprised of private non-commercial Middle Eastern carriers.
Low-cost
Similar to the international sector, low-cost carriers enjoyed positive treatment from the airline insurance markets, with average reductions in lead hull and liability premium despite healthy increases in both passenger and AFV forecasts. The sector now represents around 12% of total annual lead hull and liability premium, compared to 5% in 2005. Nine of the 32 low-cost carriers that meet the criteria for inclusion in this data set have seen their AFV forecast fall below the 2010/11 total, while only four are expecting a lower number of passengers. Interestingly, the majority of the reductions in AFV are relatively minor, reflecting a reduction of fleet size by three aircraft or simple depreciation. In keeping with the sectors philosophy, low-cost carriers have the lowest insurance cost per passenger, US$0.36 compared to an industry average of US$0.63. This has fallen by 12% compared to 2010/11 programmes, a reduction that is broadly in line with the industry average.
30
Analysis
Airline Insurance
Charter
Lead hull and liability premium is down 1% on average, AFV down 2% but projected passenger numbers are up 11% as a result of healthy projections across the sector. Over a third of the airlines in the charter sector have a deteriorating credit balance, although six of these are within US$3 million of their 2010/11 total, suggesting that minor losses have reduced the sectors credit balance, rather than significant claims. Overall the sectors credit balance has appreciated. Of the 41 renewals in the regional sector, only four are projecting a decline in the number of passengers, while 10 are expecting to see their AFV fall. The sectors credit balance, the worst in the industry, appears to have been gnawed away by a string of minor losses: 19 of the sectors 41 carriers have seen their credit balance deteriorate over the last 12 months, 12 of which are within US$3 million of the 2010/11 credit balance.
Regional
Lead hull and liability premium in the regional sector increased by 5% on average for 2010/11 insurance programmes, but this was coupled with significant increases in exposure, up 7% in terms of AFV and 15% in terms of passenger forecasts. While broadly in line with the industry averages, this is something of a deceleration for the sector compared with 2010/11 renewals, when regional carriers had the highest AFV and passenger increases forecast, as well as the highest increase in lead hull and liability premium.
Cargo
After suffering as badly as any during the worst of the economic downturn, the cargo sector appears to be investing in fleet once again, with nine of the sectors 13 placements forecasting AFV increases. Credit balance has also improved since 2010, with only three airlines seeing deterioration in the position, none of which is by more than US$1 million suggesting minor rather than major losses are the issue for the sector. Only a single carrier has a negative five year credit balance with the airline insurance market for 2010/11 placements.
31
Airline Insurance
Premium % change
-3% +11% +13% -26% -1% -2%
2011
38 30 35 28 83 214
2010 (US$m)
1,113.57 281.98 171.05 97.29 212.33 1,876.21
2011 (US$m)
1,049.07 274.73 168.82 97.03 225.63 1,815.28
% change
-6% -3% -1% 0% +6% -3%
% change
+6% +6% +16% +9% +6% +6%
% change
+5% +17% +25% +5% +15% +8%
32
Analysis
Airline Insurance
15%
6%
11%
0%
10%
Percentage Source: Aon market data premium change by average fleet value 2011 lead hull and liability
15%
16%
15%
25%
9%
9%
17%
6%
6%
15%
6%
8%
6%
6%
5%
10%
20%
0%
10%
20%
30%
Percentage
33
Airline Insurance
% change
+1% +1% 0% -2% +3% +1%
% change
-10% -17% -21% -5% -8% -11%
2011
802.54 176.75 140.51 171.49 98.31 1,389.60
In line with previous years, airlines with the largest average fleet value (AFV) have received the best average premium movements. There are a number of factors involved in this, including the economies of scale that programmes of this size bring, as well as the amount of an underwriters target that they can fulfil at a stroke. It should be pointed out that the US$5 billion+ segment is also the most profitable in the industry in terms of the five year credit balance and generates the most premium on an annual basis by some margin.
That said, looking at the data on a cost per passenger basis which reflects the rating of a risk, shows that the real cost of insurance has improved most for the US$2-5 billion and US$1-2 billion segments. These segments have also enjoyed the highest level of exposure growth.
34
Analysis
Airline Insurance
Inclusion Criteria/Notes
The information featured in this report is representative of market trends only. With vertical or fragmented marketing, sourcing exact percentage rate movements and/or shifts in premiums can sometimes prove difficult. Our analysis is therefore representative of airline programmes with an insured average fleet value equal to or greater than US$150 million. Average fleet values are the average projected value of a fleet during the entire length of an insurance programme, rather than at a specific date. Flag carriers are classified as national airline, international carriers are airlines that fly intercontinental but are not flag carriers. Rate and premium movement percentages are based on the London nett lead hull and liability terms. Five year credit balance describes the difference between the total value of claims and the total amount of premium collected over five years. Insurance cost per passenger is worked out by taking the total cost of hull and liability premium for an industry segment and dividing it by the total number of expected passengers.
Where airlines have replaced their programmes or have implemented short-term policies, the full annual figures have been used for calculation purposes on their accounts. If placements have changed, through the addition or deletion of airlines, no allowance has been made in the expiring figures. Unless otherwise stated, all data is based on Aon market data. Aon loss data is based on information from Aon Benfield Aviation Reinsurance. Loss data excludes 9/11. The loss regions are based on the domicile of the airlines involved, rather than where the loss occurred. It should also be noted that for comparison purposes all local currencies are converted to US dollars. This review focuses on western built, non-military aircraft and airline organisations. Unless otherwise stated long-term loss refers to the period 1995 to 2010. Please note figures may differ due to rounding. Due to the sensitive nature of the issues involved, the losses overview features only those incidents with an incurred hull and liability loss value of US$1 million or above.
35
Airline Insurance
Feedback on issues, suggestions for future coverage, comments and editorial enquiries, please contact: Magnus Allan magnus.allan@aon.co.uk +44 (0)20 7086 1277 For information and analysis, please contact: Paul Mitchell paul.mitchell@aon.co.uk +44 (0)20 7086 3641
We must point out that due to the nature of this type of document, Aon cannot be held responsible for any loss or damages caused through the use of any information contained herein. While we try to comment on issues we know to be fact, we are fully aware that in gathering the information contained herein from various sources there is always the possibility of inaccuracy. We can therefore only claim that the information is correct to the best of our knowledge at the time of publication.
36
Analysis
For more information, please contact: Simon Knechtli Head of Aviation simon.knechtli@aon.co.uk +44 (0)20 7086 4554 David Boyle during Head of APAC 2010, david.boyle@aon.co.uk +44 (0)20 7086 4940 John Levack Head of EMEA john.levack@aon.co.uk +44 (0)20 7086 4555
Overview.
The aerospace industry continued to defy gravity Stephen Alexandris continuing a trend laid down in 2007. US Airline Practice Leader
stephen.alexandris@aon.com +1 (0)214 989 2211 Mike Smith Head of Americas mike.smith@aon.co.uk +44 (0)20 7086 4568
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