Aviation rates ease despite claims in Q1

Last year was marked by a number of high profile aviation losses, a trend that continued into 2015. The largest loss in the first quarter of this year was from the Germanwings Airbus A320 crash, which came down in mountainous terrain over France killing all 150 passengers and crew on 24 March. It followed the loss in February of a TransAsia ATR72-600 plane that crashed in Taipei shortly after take-off, killing 43 of the 58 persons onboard. According to JLT, the loss of the Germanwings A320 is likely to result in another substantial hit for the aviation insurance market, which was struck by a series of large losses last year, including two Malaysia Airlines Boeing 777 aircraft with 534 people on board. "The respite from the large losses of 2014 has proved short lived as we witnessed a series of high profile and tragic losses in the first quarter of 2015," according to Nigel Weyman, Chief Executive Officer Aerospace, JLT Specialty. "These events have reignited much debate on the subject of aviation safety and have the potential to bring about changes in legislation and airline procedures," he said.hideFor example, following the crash, a number of authorities and airlines have introduced new aviation rules and recommendations that will require two people to remain in the cockpit at all times as a safety precaution, according to JLT's latest Plane Talking publication. Initial investigations suggest that the Germanwings crash was the result of deliberate pilot action, which would mean the hull claim is likely to be paid by the hull war market while the liability claim will be settled under an all-risks policy. The 'all risk' insurance policy is underwritten by a consortium of insurers led by Allianz SE, while the hull war policy is reportedly underwritten at Lloyd's. The Germanwings crash has resulted in a relatively high first quarter claims burden for insurers. Airline losses in the first quarter were around $460m, slightly lower than the same period last year that included the exceptional loss of Malaysia Airlines MH370, the largest loss of 2014 and a significant claim, explained JLT. According to insurance broker Willis, the loss total for 2014 was $1.67bn, marginally above the five-year average. However, while 2014 experienced some of the largest and most high profile losses ever, the underlying positive safety trend continued, Willis said in its Airline Insight publication. Despite losses in 2014, abundant capacity halted the market's ability to achieve significant premium increases following large losses in 2014, according to Willis. While insurers had high expectations of change, premium increases in the final quarter were just 5%, with premium levels at the year-end barely changed from the previous year, the broker said. "Significant premium increases were in reality not going to be achieved across the board when the majority of buyers approached their renewal with growing exposures, good loss experience and in the majority of cases a younger, safer fleet of aircraft," Willis said. As a result, the trend towards renewed market softening appears to have continued into the first quarter of 2015. "The rate reductions seen in the first quarter appear larger than those we witnessed at the end of last year, with premium rates and premium volume down by around 10%," said Mr Weyman. "At the start of 2015 it would seem that rating reductions were once again available for those risks with significant growth and good historical loss history," he said. The experience of the first quarter, however, is not a good guide to market conditions going forward, according to Mr Weyman. Only a small number of airlines renew in the first quarter and contracts would have already been negotiated prior to losses, including Germanwings. "By the end of the second quarter we will be in a much better position to assess the market situation and gauge whether recent losses have had any effect on renewal pricing," he said. Willis also noted that first quarter renewals are of limited value when predicting the direction of the market. But given current capacity levels and claims trends it believes that 2015 looks set to be very much a continuation of the 'buyers' market'. An additional factor that could come into play later this year is market consolidation, according to JLT. Recent months have seen a number of insurers engage in M&A activity, with falling rates, intense competition and low interest rates piling pressure on smaller companies. "Whilst the impact of this recent insurer consolidation is still unclear, the greatest force driving current pricing is overcapacity, so ultimately the effect of these mergers could become an important factor in months to come," said Mr Weyman.

Aviation rates ease despite claims in Q1

Want to read this article?

Read Next

International SOS warns of ‘burnout epidemic’

Strebel to replace Gonzalez as head of Swiss Re China

Risk managers want software providers to integrate more AI tools

Court says German government must tighten up climate protection

Premium increases continue to slow down in US commercial P&C market

International SOS warns of ‘burnout epidemic’

Strebel to replace Gonzalez as head of Swiss Re China

Risk managers want software providers to integrate more AI tools

Court says German government must tighten up climate protection

Premium increases continue to slow down in US commercial P&C market

Want to read this article?

Read Next

International SOS warns of ‘burnout epidemic’

Strebel to replace Gonzalez as head of Swiss Re China

Risk managers want software providers to integrate more AI tools

Court says German government must tighten up climate protection

Premium increases continue to slow down in US commercial P&C market

Related Articles