Willis Group Holdings has said that it “expects aviation insurance prices to rise and the insurance market to harden further through the end of 2008 and into 2009,” according to the latest report issued by the broker’s global Aviation Practice.
In its most recent “Airline Insurance Insight” report, Willis indicates that “lead premiums in November have increased 16 percent, while overall program premiums are increasing at an even faster rate. The market saw 18 renewals in November, including some of the world’s largest programs. Despite only having four more renewals than October, due to the size of the programs, November generated nearly four times the premium than the previous month. November is now the third busiest month for the number of renewals – after December and July – but ranks second only to December in terms of premium volume.
“Among the 18 November renewals were five pure cargo carrier programs, which, because of a number of major losses in this sector over the past 12 months, saw premiums spike 40 percent in November, much higher than passenger airlines.”
Willis also said the report concluded that “insurers are seeking and achieving rate increases in an environment of relatively benign loss levels and over capacity, which would normally be expected to favor rate reductions. The principle factors leading to the hardening market, the report said, are insurers controlling the deployment of capacity as part of their strategy to manage the market cycle, and capital providers increasing their demands for better returns against the backdrop of the global financial crisis.”
The report also found evidence that “international insurers are taking a harder attitude toward pricing than those in the U.S., and are attempting to achieve higher percentage increases in premium.”
Steve Doyle, Executive Director of Willis Aviation, commented: “As we approach the end of the year, all signs point to a continuing hardening of the market. The lack of any significant losses recently would appear not to have tempered a change in underwriter attitudes. Insurers undoubtedly feel that they have gained momentum.”
The report noted that the total premium generated in 2008 to date, including known December renewals, was $1.233 billion, an increase of 9 percent, or $101 million, over 2007, “despite the fact that growth has been slowed by the absence of carriers that have ceased operations in 2008.”
In a previous report, Willis said continuing firming of rates could mean that gross premium for 2008 will exceed $2 billion, “driven by major renewal activity in December. By comparison, gross premium for 2007 was $1.83 billion.”
Willis also indicated: “December is the busiest month of the year for renewals, both in terms of the number of renewals and premium volume. Last year, December renewals generated about 50 percent of the year’s premium, and that percentage is expected to increase in 2008, amplifying the effect of the hardening market and setting the benchmark for renewals in 2009.
“The 55 risks scheduled to renew in December include many of the world’s larger carriers. At this time, known December renewals total $350 million in premium, up 8 percent over last year, while Average Fleet Value (AFV) is up 7 percent and passenger numbers are up 4 percent. However, this information does not include many of the renewals of major North American carriers, the majority of whom renew in the second half of the month and last year accounted for 43 percent of December’s premium. As more information becomes available, exposure percentage change figures (AFV and passenger counts) are expected to be reduced, reflecting the impact of the economic downturn.
For the year, claims activity remains low, the report said. Airline claims for 2008 currently total $1.289 billion, including a pro rata figure of $390 million with respect to attritional losses. At the same point in 2007, claims totaled $1.797 billion.
Source: Willis Group Holdings – www.willis.com
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