Aviation Market Flies Under
Radar of ‘Hardening’ Market
Ample capacity, positive loss trend, industry consolidation signal a continued soft market

BY MARK E. RUQUET

AT THE BEGINNING of 2011, Aviation insurance brokers fully expected to see a move toward a hardening market over the course of the year. Instead, the line produced a year of pricing decreases—and no one is anticipating any big jumps in 2012.

“Unless there is a significant
event in terms of reduced capacity
or a major disaster, we do not see
any drivers of rate increases in 2012,”
says Peter Schmitz, CEO of Aon Risk
Solutions Global Aviation Specialty.
“The main driver of rates is an
individual airline’s book of business.”
Recent renewal premiums ranged from
flat to down 10 percent, says Schmitz.

Jeff Bauer, president of NationAir Aviation Insurance, shares the view that it’s unlikely rates will take off in 2012. “If an account is particularly desirable [to an insurer], then maybe we’ll even see a decrease,” he says.

Three factors conspired to keep Aviation prices from gaining altitude last year. One was losses: 2011 turned out to be one of the safest years in recent aviation history, with no significant loss of life.

In early December Aon released a report saying that there were a total of 175 lives lost covered under Standard-Liability policies;

hardening is ample capacity. Insurers are attracted by the industry’s positive loss-trend results and by their desire to diversify their portfolios with solid-performing risks.

Schmitz says there is nothing to indicate that capacity will decrease. In fact, some underwriters may increase their capacity.

Weyman notes that the only scenario he sees for a change in the market is if there is economic turmoil or a substantial natural catastrophe that forces carriers to withdraw their available capacity to redeploy it elsewhere. “We’re not seeing any significant capacity issues in the next 12 months,” he says.

A third reason for premium decreases is the consolidation of the airline market. The reduction in the number of carriers is also reducing the premium base for carriers to draw from. That means, for especially desirable risks, intense competition to get that business into an underwriting portfolio.

Although the total figures for 2011 are still preliminary, Doyle says fleet numbers for the year were up 6 percent while passenger numbers rose by 8 percent. However, despite these increases, overall premium volume fell by 2 percent—a sure sign of a soft market. NU

AVIATION INSURANCE NET PREMIUM
(HULL AND LIABILITY)
in Millions
Q1

Source: Willis

2010 Net Premium

2011 Net
Premium
Premium
Change

$29.71 $33.79 13. 7 $241.62 $240.06 -0.6

$306.8 $304.24 -0.8 $122.12 $113.39 - 7.1 $700.25 $691.49 -1.3

the long-term average is 582 fatalities. It was the first time since 1995 that by Dec. 1 the number of fatalities was under 300.

“2011 was great in terms of safety,” says Steve Doyle, business development and sales director for Aerospace Willis Group.

“If the loss trend continues, it will be hard for underwriters to substantiate any rate increases even though they are selling [insurance] below costs,” says Nigel Weyman, chairman of Jardine Lloyd Thompson Aerospace.

“If there is an absence of a major loss during the first half of the year, the pressure will be on underwriters to give away more [premium] growth,” Weyman adds.

The second factor keeping the market from

Rates Are Flat Across General Aviation—Except for Helicopters

Where there is some price sensitivity, how-
ever, is in coverage for helicopters, where rates
are firmer and capacity is less than for other
corporate-fleet insurance.
The reason for this is there is greater “loss
sensitivity” with helicopters than with other
aircraft.
“Those rates are firmer than a corporate
fleet; we’re not seeing decreases,” says Bauer.

“But we’re not getting huge increases either. It
is still minimal.”
Peter Schmitz, CEO of Aon Risk Solutions
Global Aviation Specialty, notes there are
about 30 insurers in London and the United
States that write General Aviation business.
When you add in reinsurers, Lloyd’s syndicates
and other local markets, that number rises to
around 50.