Airlines report record low claims in 2011 as soft market looks set fair

These figures, along with abundant capacity in the market, meant that premium prices continued to soften going into 2012, with an average 2011 fourth quarter reduction of 5%. Despite this positive momentum for buyers, and the likelihood that capacity will remain plentiful amid rumours of fresh capacity entering the market, Aon adds that the impressive numbers will not necessarily result in an immediate slashing of rates for airlines and their risk managers. According to Aon’s Airline Insurance Market Outlook 2012: The Risk Remains, 2011 saw claims, excluding minor losses, of $522m. This compares to an average figure of $1.17bn and is down from $1.59bn in 2010. The figure is the lowest since the broker’s first market outlook in 1995.hideFactoring in an estimate for minor losses, the overall loss total last year was $1.13bn, compared to $2.10bn in 2010. 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. The 37 airline incidents reported in 2011 were around half the average number of 70. The previous lowest number of incidents was 53 back in 2002. There were 175 aviation fatalities worldwide in 2011, compared to 623 on average. There were only four fatalities covered under standard hull and liability insurance policies in Europe. No region had more than 70 fatalities and there was only a single incident involving more than 30 deaths. According to Aon, last year there were only 4.61 recorded fatalities per million flight departures, compared to an average of 19.93 between 1995 and 2010. The lowest figure in a single year prior to 2011 was 2004 when there were 9.5 fatalities per million departures. Compared to 2010 the total lead and hull premium placed by the airlines reported on in the report was down to $1.82bn from $1.88bn. In 2010 the actual premium taken was $1.97bn, 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 Aon’s data. Average fleet values grew by 8% last year and passenger numbers by around 7%. The good news for buyers is that the underlying cost of insurance continues to fall with insurers prepared to trade risk exposure growth for reductions in rates. Average lead hull and liability premium fell 3% during 2011. This culminated in an average Q4 5% reduction in premium. These statistics are based on the lead insurer premium terms. There was plentiful capacity for aviation risks in 2011 and the situation is expected to remain healthy in 2012, said Aon. The over supply of capacity should keep in check any upwards price pressure due to potential losses, it added. Aon was however keen to point out that, 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. “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,” said Aon in its report. But according to Peter Schmitz, Chief Executive Officer: Aviation, Aon Risk Solutions, there are a number of reasons why these figures ‘may not instantly lead 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,” he explained. “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.” He continued: “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 a phenomenally low level of claims does not mean that the next year will be the same, because the level of risk does not change overnight.” While 2011 was ‘phenomenal’ in terms of claims, 2007, 2009 and 2010 were well above the long-term average and 2008 was only slightly below that number, pointed out the broker. Underwriters will continue to look at the risk profile of an insurance programme on an individual basis as well as taking into account overall insurance market trends. “Their appetite for reacting positively to 2011’s results will clearly not depend purely on technical pricing, rather the commercial realities of the global market in which they are trading and set against the fact that they are currently close to the nadir of the market cycle,” said Aon. But the low level of claims will mean more airlines with improving loss histories and should improve the negotiating position for insurance brokers and risk managers. “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,” Aon said. Aon’s analysis is based in airline programmes with an insured average fleet value equal to or greater than $150 million.

Airlines report record low claims in 2011 as soft market looks set fair

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