Buyers Benefit From Soft Market During Busy Airline Renewal Season
Overall premium volume for 2013 on track for a post 9/11 low
Number of programmes renewing on a two year basis increases as some buyers hedge against possible market
London, UK, December 23, 2013 – Unprecedented levels of competition, growth in exposures and low loss levels
are driving premium reductions for insurance buyers during the busy airline renewal season according to the
Q4 Issue of Airline Insight, from Willis Group Holdings (NYSE: WSH), the global risk adviser,
insurance and reinsurance broker.
The report noted that premium volume in 2013 is expected to be more than US$150 million lower
than the prior year. This will generate an overall premium volume for 2013 of less than
US$1.5 billion, the lowest it has been post-9/11.
“With the majority of premium available at this time, the continued appetite for, and in some cases
increased, participation by insurers has fuelled significant reductions. Market conditions are being described by some as
the ‘softest for a generation’,” said Phil Smaje, CEO of Willis Aerospace.
According to the report, annual loss levels continue to track below the five year average despite four
losses of over US$50 million: the Lion Air crash in April which resulted in a total
loss of a B737 aircraft but thankfully no fatalities; the Asiana Airlines crash in San Francisco
which claimed three lives and left some passengers with serious injuries and which could yet impact
the liability reserve; and the UPS crash near Birmingham Airport in Alabama which killed the two
crew members on board. The recent Linhas Aereas Mozambique crash which killed all 33 people on
board also exceeded the US$50 million loss threshold.
Commenting on the impact these losses may have on the insurance market, Smaje said: “With the significant
‘miss factor’ that exists, whereby the high level of capacity and the number of underwriting units
mean that any loss will likely only impact a portion of the market, it remains unlikely
that a single catastrophe, or even a number of significant losses, during the remainder of the
year will do anything to halt the downward trend.”
Meanwhile, exposure levels continue to increase as the fortunes of the airline industry improve as the global
economy revives. Average fleet values have grown by 9% in 2013 and passenger numbers by 8%,
according to the report.
“The inclusion of the majority or all of this increased exposure, for the same or less premium,
plainly demonstrates the benefit of current market conditions for buyers in a growth cycle,” explains Smaje.
Looking further ahead, if the current trend in premium volumes and loss levels continues to slide, it
is possible that at lead terms the market will fall to unprofitable levels by 2015. A
number of buyers are looking to hedge against any possible market change by securing some portion
of their programme on a two year basis, according to the report.
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