Airline Insight September 2013

 Airline Insurance Market Overview

As people return from the annual holiday period and the airline insurance renewal season begins there will be an expectation of a flurry of activity between now and the end of the year. People will likely have been contemplating a whole host of things and may well decide to make some changes! One thing unlikely to change however is the airline insurance market direction, as it continues to experience a period of stability that has led to opportunities for brokers and buyers to be creative and innovative in order to maximise the sustained favourable conditions.

Capacity remains abundant with aviation being clearly viewed as an area where insurers can generate a return despite the declining premium levels. This is particularly true when combining their overall aviation insurance portfolio. It is clear that the industry is safer, despite some recent accidents losses and fatalities remain low.

Exposures will continue to grow as the mood of improved economic conditions gives the consistent single digit exposure growth a further boost.

It is likely that consolidation will continue and as a result there will be further erosion of premium and leverage through economies of scale.

The favourable conditions are creating a situation where the purchase of airline insurance is viewed as increasingly short term by an industry that has a long term view. Differentiation of price for brokers and insurers is a challenge in a situation when it appears everyone is offering an acceptable deal. The real differentiator is still in service that is provided which varies widely between brokers and underwriters.

Differentiation for buyers is also a challenge when the cost of catastrophe insurance has become so low. When everyone is performing how do you truly demonstrate you are out performing the market?

Recent Renewals

July saw 34 renewals come into the market. The largest of these renewals were American Airlines & US Airways, the latter cancelling and replacing its December policy. Due to the, now challenged, merger process starting, these programmes were marketed together to receive maximum savings. This policy heavily influenced the premium and rating movements in July, and if you exclude these programmes the premium reduction for July falls to 12.5% and the premium movement for the year falls to 7.7%.

August saw six renewals, the largest being Alaska Airlines which has an average fleet value (AFV) just below US$4.5 billion. Other major renewals with AFV’s over US$1 billion were Monarch Airlines, Skymark Airlines & Pegasus Airlines. August saw the AFV for the six renewals have an average increase of 14%, with passenger numbers declared increasing by 12%. This equated to nearly a 10% reduction in premium, which meant the rate reductions were approximately 20%.

There is only a small amount of activity in September, with 11 renewals expected. The largest renewal in September is InterJet airlines, which has moved broker from Aon to Marsh. National Air Cargo extended into September from June, and this will be the first renewal since its loss on 29th April.

2013 Net % Premium and Exposure Movements (Hull & Liability)

World Wide Airline Hull & Liability Premium and Claims on a Calendar Year Basis