According to the Q4 Issue of Airline Insight, from Willis Group Holdings, “unprecedented levels of competition, growth in exposures and low loss levels are driving premium reductions for insurance buyers during the busy airline renewal season.”
The report noted that “premium volume in 2013 is expected to be more than $150 million lower than the prior year. This will generate an overall premium volume for 2013 of less than $1.5 billion, the lowest it has been post-9/11.”
Phil Smaje, CEO of Willis Aerospace, said: “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’.”
The report points out that “annual loss levels continue to track below the five year average despite four losses of over $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, and the recent Linhas Aereas Mozambique crash which killed all 33 people on board also exceeded the $50 million loss threshold.”
In his analysis of 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.”
The report points out, however, that “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 percent in 2013 and passenger numbers by 8 percent.”
Smaje explained: “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.”
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 program on a two year basis,” according to the report.
Source: Willis Group Holdings
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