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Aviation Insurance
Monday, November 1, 2010
Confidence returns

Confidence is returning to the airline industry with predictions of a 13% increase in passenger numbers in 2011, according to Aon in its Airline Insurance Market Indicators, 2010/11 report. This compares to a 9% decrease predicted at the same time last year. Similarly, airlines in every geographic region are investing in new stock, with average fleet values (AFV) forecast to rise by 9%, compared to only 1% the previous year.

On average, airlines that have renewed their lead hull† and liability insurance programmes between January and July 2010 have seen a 7% increase in the cost of insurance premiums compared to last year. More than 60% of those that have renewed so far have paid an increase in premium, but this is fewer than the 80% that received the same treatment in 2009, suggesting the cost of insurance for airlines is stabilising or even falling in real terms after 11 straight quarters of increases.
The Aon Airline Insurance Market Indicators, 2010/11 report analyses airlines with an insured average fleet value equal to or greater than US$150 million that have been placed in the first seven months of the year. It offers insights in to how the insurance market will act for the remainder of the year and gives an indication of how airlines expect to perform for the following year.
Regional analysis:
• Africa: At 36%, Africa has seen the most significant increase in average lead hull‡ and liability premium so far in 2010, though there is significant scope for change between now and the end of the year with only 29% of the year's total expected number of programmes having been placed between January and July;
• Asia: Passenger growth has seen a significant turnaround, with airlines predicting growth in the region of 18%, compared to reductions of 10% at the same time last year;
• Europe: AFV forecasts increased by 13% and passenger numbers predicted to increase by 8%, only 1% less than the industry average. The 2010/11 renewals appear to represent a recovery after the trauma endured in 2009 rather than a return to high level growth seen during the middle of the last decade;
• Latin America: All airlines that have renewed so far this year have seen increases of more than 10% in the cost of their insurance premium. This is primarily due to higher fleet values rather than increases in passenger numbers, but still suggests that the price of insurance is falling in real terms;
• Middle East: The cost of insurance premium has increased by 5% so far this year, although 82% of the projected annual premium has still to be placed;
• North America: Passenger numbers are forecast to rise by 8%, while AFV is expected to increase by 11%, signalling a stabilisation in this, the most mature aviation market in the world.

Simon Knechtli, aviation leader at Aon Risk Solutions commented, "The losses in the airline industry during the last couple of months might be expected to have hardened the insurance market. In reality however, appetite for airline risks remains buoyant. Underwriters are competing for their desired market share and the strength of this competition has blunted the aspiration for higher prices as shown by the statistics in our report. We expect this to continue for the remainder of 2010, with further capacity entering the market in October and little evidence at this stage of anyone leaving.
“Airlines' willingness to invest in fleet renewal shows there is a keen focus on maximising operational efficiency in the industry but also that confidence is starting to return. After the financial turmoil of the last couple of years, airlines are predicting that people will be returning to travel for both business and leisure in greater numbers than we have seen for the last few years. This is great news for airlines particularly if yields start to increase.”

Footnote:
†Average fleet values are the average projected value of a fleet during the entire length of an insurance programme, rather than at a specific date;
‡Average lead hull refers to the price an airline pays to the leading underwriter in their insurance programme to insure their aircraft.
 

Copyright © Insurance Times and Investments® Vol:23.11 1st November, 2010
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