Airline Insurance Market Outlook 2014 Return of the global trend?
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Market Outlook 2014
Airline Insurance Market Outlook 2013
Aon Risk Solutions
Airline
Overview
Insurance
Market Outlook 2014
Return of the global trend?
Analysis
Overview. Contents. The aerospace industry continued to defy gravity during 2010, continuing a trend laid down in 2007.
Market Outlook 2014
Airline Insurance Market Outlook 2014
Airline Insurance Market Outlook 2014:
Overview
Return of the global trend?
Foreword 1
Executive summary 3
Overview 4
Airline reinsurance market 11
Analysis
Quarterly analysis 13
Regional analysis 17
Sector analysis 30
Analysis
Fleet value analysis 36
Inclusion criteria/notes 38
Airline Insurance Market Outlook 2014
Market Outlook
2014.
Return of the global trend?
1
Market Outlook 2014
Airline Insurance Market Outlook 2014
Foreword
For the first time in five years, airlines all over the world seem to be building
for growth. The timing is good from an insurance perspective, with prices
continuing to fall, driven by strong underwriting competition, a relatively
small number of claims and record low fatality levels.
Of course, it’s not as simple as all that. On the one hand, 2013 was another year with the lowest number
of incidents and the lowest number of fatalities in the industry recorded since 1995 (when the Aon Risk
Solutions aviation team began scrutinising the data). Insurance capacity also remained high in 2013, creating
competition for inclusion on healthy airline insurance programmes.
On the other hand, while they were limited in terms of numbers, the value of hull claims was relatively high.
As a result, total hull and liability claims were higher than premium in 2013, the first time that has happened
since 2010. The difference between premium and claims was minimal, and the fact that it was driven by a
relatively low number of large losses means that not all underwriters will have a negative result on their books.
This means that while there is unlikely to be an instant hardening, there is likely to be increased scrutiny.
At time of going to press, details are still limited about the missing Malaysia Airlines flight MH370, but what
is clear is that the aircraft carried more passengers than the total global number of airline fatalities in 2013,
highlighting the potential for catastrophic loss that the airline sector will always represent.
At this early stage of the year, we believe it is unlikely that this incident will be a catalyst for a shift in current
market conditions, however should there be another large loss or a string of losses this could change.
Aon Risk Solutions team of aviation experts stand ready to work with airlines and the insurance markets to
deliver insurance programmes that deliver value to our clients.
If there are any aspects of this report that you would like to discuss in more detail, please do not hesitate to
speak to one of our team.
1
Airline Insurance Market Outlook 2014
Highlights:
■■ Average lead hull and liability premium fell 10%
■■ Average fleet values grew by 9%
■■ Forecast passenger numbers grew by 7%
■■ Total lead hull and liability premium was
US$1.4 billion
■■ Total incurred claims were US$903 million
■■ Total incurred claims including an estimate for
minor losses were US$1.5 billion
2
Market Outlook 2014
Airline Insurance Market Outlook 2014
Executive summary
Premium: Total lead hull and liability premium fell by Fleet: The effect of new aircraft being delivered at
10% on average for 2013/14 lead hull and liability the premium end of the airline industry is being seen
airline insurance programmes. This follows an 11% across the insurance market. Fleets in the mid-range
reduction recorded for 2012/13 placements. The falls saw the largest growth in average fleet values and
come despite a continued increase in exposures. passenger number forecasts but also the strongest
decline in the cost of lead hull and liability premium
Claims: There were 35 incidents and 153 fatalities
as aircraft were replaced (see page 36).
in 2013 that meet the criteria for inclusion in this
report, compared to a long term average of 69 and Capacity: Capacity continues to be high in the airline
583 respectively. The total value of major losses insurance market totalling almost 230% for a non-
however was US$903 million, nearly three times US airline with a US$1.5 billion liability limit, with
higher than the total recorded in 2012 (see page 8). underwriters attracted by the relatively low number
of claims and the opportunity to diversify their books.
Risk exposures by region: Exposure grew in all
This means that pricing is likely to continue to be
regions at the same time as the cost of lead hull and
competitive in 2014/15.
liability fell in 2013. On average, Asia and the Middle
East continue to have the most valuable aircraft by
some margin (see page 17).
Business sectors: Reflecting a challenging year
from a claims point of view, the cargo sector bucked
the overall industry trend with a lead premium rise
for 2013/14 insurance programmes coupled with
a reduction in average fleet value (see page 30).
3
Airline Insurance Market Outlook 2014
Overview
Around 80% of airlines enjoyed a reduction in their lead hull and liability
premium, the highest proportion of reductions since 2001.
Total premium
1982-2013
4.0
3.0
-US$0.62bn 3.5
Premium
Claims 3.0
-US$0.09bn
2.0 +US$0.59bn 2.5
+US$0.66bn
-US$0.09bn
USD billion
USD billion
2.0
1.5
1.0
1.0
0.5
0% 0.0
2009 2010 2011 2012 2013 1982 1988 1994 2000 2006 2012
Source: Aon data *to-date
Total premium and claims (including minor claims estimate 2009–2013) Total premium 1983–2013
Source: Aon Risk Solutions/Aon Benfield Source: Aon Risk Solutions
4
Airline Insurance Market Outlook 2014
Proportion of airline programme
premium movement
100%
The longer answer
Overview
Underwriters tend to look at the results of a book of
business over five years.
Reduction
Comparing claims with lead hull and liability
Percentage
premium over the last five years, we would estimate
50%
that the airline insurance market overall has made
a US$0.89 billion profit. While this may not sound
slight, it does not take into account running costs
Stable
and the fact that the profits have been divided
between a number of underwriting organisations.
Increase
Equally, the difference between premium and claims
0%
2001 2005 2009 2013
is so marginal that not all underwriters will have
enjoyed a positive return on their airline books of
Proportion of airline programme premium movement
Source: Aon market data
business if they were involved in a claim.
Source: Aon Risk Solutions
Despite this, the amount of lead hull and liability
Total global hull and liability claims for 2013 are likely
premium in the airline insurance market continues to
to be in the region of US$1.5 billion once an estimate
fall year on year. A decade ago, there was significant
for minor losses has been added to the US$903
discussion about the ramifications for pricing if the
million recorded major claims. With total global lead
total annual lead hull and liability premium fell below
hull and liability premium falling a further 10% on
US$2 billion. This floor was breached in 2006 and
average for 2013/14 insurance programmes, total
total premium has been below US$2 billion each
lead premium for the year was also around
subsequent year.
US$1.4 billion.
With the value of claims exceeding the total lead hull
and liability premium, is the airline insurance market
now likely to harden slightly? The short answer is that
this seems unlikely at this stage.
5
Airline Insurance Market Outlook 2014
There are a couple of secondary reasons why 2013 Parity of liability
results are unlikely to lead to an instant (and some
A decade ago there was a very clear dichotomy
underwriters might suggest overdue) hardening of
between liability claims in North America, and to
the airline insurance market.
a lesser extent Western Europe, and the rest of the
The most obvious of these is that the 2013 hull claims world. To put it exceedingly simplistically, the liability
figures were dominated by a single incident which values of passengers in either of these two locations
represented over a third of the hull claims total for was significantly higher than elsewhere in the world.
the year. To put it simply, if an underwriter was not
While US awards remain the highest by some
exposed that specific insurance programme, 2013
margin, with increasing global economic parity,
will be recorded as a good year for the aviation book.
the cost liability claims following individual fatalities
This highlights however that while there have is equalising. As a result, a major loss involving
now been three good years from an insurance loss significant liability claims anywhere in the world
point of view, the airline industry still represents could have significant ramifications for the airline
considerable risk. As the value of aircraft continues insurance market.
to grow and the expectations of liability claims
become more even around the world, the risk of
a major incident and subsequent market moving
claim increases.
It should also be pointed out that in the main, losses
for 2013 will be paid against policies that incepted in
2012. As a result, it could be argued that we should
compare the estimated losses for 2013 against 2012
premiums. This makes the loss amount of US$1.4
billion in 2013 comparable with a premium of
income US$1.6 billion for 2012, a far healthier ratio.
As ever, the conditions are complicated.
6Market Outlook 2014
Airline Insurance Market Outlook 2014
Changing fleets Confidence is high
Overview
Comparing average fleet values between 2007 and For the second year in a row, nearly 70% of
2013 provides further proof of the changing balance airlines forecast an increase in their AFV during the
of the world. In 2007, the AFV of the North American course of their 2013/14 hull and liability insurance
fleet represented 31% of the global fleet, with Asia programmes. This suggests improving confidence in
Pacific representing 30%. In 2013, North American the industry.
AFV is estimated to be 20% of the global fleet, with
Ultimately, as the industry invests in up to date
Asia Pacific representing 37%. The Middle East has
Regional fleet value hardware, insurers respond by bringing down
risen slightly
2013 from 7% to 10% over the same period.
the cost of insurance, because technological
Africa
improvements and simple wear and tear means that,
2% in the main, new aircraft are safer than the ones that
North America
20% they replace. Even when there are major technical
issues, there are far more back-up systems to ensure
that an aircraft lands relatively intact.
Asia Pacific
37% As a result, while new aircraft are a more expensive
Middle East
10% investment and can often carry more passengers,
from the point of view of the underwriter, the risk
Latin America is diminishing. Again, this is a somewhat simplistic
4%
summing up of a complex set of risk models that
the underwriting process follows, but it does explain
Europe some of the reasons why the market is unlikely to
27%
harden in the short to medium term unless there is
a string of catastrophic losses during 2014.
Regional fleet value
Source: 2013
Aon market data
Source: Aon Risk Solutions
7Airline Insurance Market Outlook 2014
A third year of low claims
From a claims point of view, for the second time in The total number of incidents that resulted in claims
three years, there were fewer than 200 fatalities in was also exceptionally low, with only 35 incidents
the aviation industry insurable under standard hull recorded, compared to 69 on average between
and liability programmes. According to Aon data, 1995 and 2012. This is the first time since 1995 that
this is the lowest number of insurable fatalities in the the number of incidents valued at more than US$1
aviation industry since 1995 and only the second million has been below 40 worldwide, but the third
time since 1995 that the number of has been below year in a row that they have been under 50.
300 (the first time was in 2011, with 2012 still well
Despite the relatively low number of claims and the
below the long-term average).
lowest number of incidents for the best part of two
Number of fatalities, global decades however, the actual value of claims was
1995–2013
Number of incidents,
relatively high. global
1995 - 2013
1,500 Average, 100 Average,
1995–2012 1995–2012
1,250
75
Number of incidents
Number of fatalities
1,000
750 50
500
25
250
0 0
1995 1998 2001 2004 2007 2010 2013 1995 1998 2001 2004 2007 2010 2013
Source: Aon Loss Data
Number of fatalities, global 1995–2013 Number of incidents, global 1995–2013 Source: Aon Loss Data
Source: Aon Benfield Source: Aon Benfield
8Market Outlook 2014
Airline Insurance Market Outlook 2014
Overview
Around a third of the US$903 million total claims
value came from a single incident, the ninth most
expensive in aviation history, according to our
records. Despite the high value of the loss, only three
fatalities were recorded in the incident.
As discussed above, while this was an exceptionally
expensive loss, it is unlikely to have significant impact
on the direction of the airline insurance market.
Value of claims, global Cumulative fatalities 2013
1996 - 2013 (Passenger and third party fatalities)
3,000 750 2012
Including minor loss estimate
2013
Average 1995–2012
2,500
Value of claims (US$ million)
Number of fatalities
2,000 500
1,500
1,000 250
500
0 0
1997 2001 2005 2009 2013 Jan Apr Jul Oct
Source: Aon Loss Data Source: Aon loss data
Value of claims, global 1996–2013 Cumulative fatalities 2013 (Passenger and third party fatalities)
Averages exclude September 11th losses
Source: Aon Benfield Source: Aon Benfield
9Airline Insurance Market Outlook 2014
The year ahead
The airline, aerospace and general aviation books With the market at a very low ebb from a pricing
all continue to be relatively soft at this stage. There point of view, there has been an increase in
is little evidence of any catalysts of hardening on longer-term pricing strategies as some airlines
the horizon, unless 2014 turns out to be a year with and brokers seek to make the most of the benign
a significant number of catastrophic losses. pricing conditions.
Cumulative claims 2013
(Including minor loss estimate)
The tight margin between the total lead hull and
1,750
liability premium and the total estimated value of 2012
2013
hull and liability claims is likely to be something that Average 1996–2013
1,500
underwriters look at closely, but at this stage, it will
simply increase the competition for inclusion on 1,250
insurance programmes with a good loss history and
USD millions
strong risk control measures in place. 1,000
The pressure on underwriters to increase their 750
premium income will continue to grow, but while
there is still so much underwriting capacity it 500
seems unlikely that this will lead to anything other
250
than more competition for inclusion on good
risk programmes.
0
Jan Apr Jul Oct
As the ripples from the new generation wide-body
aircraft continue to be felt throughout the industry, Source: Aon loss data
Averages exclude September 11th losses
Cumulative claims 2013
the actual risk that many programmes represent Including minor loss estimate
continue to be perceived to be falling.
Source: Aon Benfield
10Airline Insurance Market Outlook 2014
Airline reinsurance market
Reinsurance pricing in the aviation sector fell once again at the start of 2014,
Overview
with programmes exhibiting little or no loss activity during 2013.
As a result of low loss activity and, in the absence Vertical limits and retentions remained largely stable
of any catastrophe losses since 2008, capacity in 2013 and are likely to remain so during 2014
remains plentiful despite the incredibly low rating unless there is a dramatic increase in loss frequency
environment. While aviation rates have fallen for that drives pricing to prohibitive levels. Some insurers
a number of years, the low level of loses has meant have increased retentions or taken co-insurance in the
that the sector has outperformed many other primary area to meet budget expectations.
specialty classes. Rates on average fell 7.5% for
Many reinsurers are talking about the end of rate
each sub-class at January 1, continuing the long-
reductions, but with some of the larger markets
term trend.
still looking to grow we expect rates to fall further
However, with exposures growing and rates at in 2014.
historical lows, should 2014 experience claims at the
Aviation is a very transparent class and analytics are
level of the expected losses then more underwriters
prominent in most underwriting decisions albeit with
could suffer significant underwriting losses than in
a heavy weight being given to loss record. Very few
previous years. In previous upturns, market capacity
programmes now meet technical pricing expectation.
was much less abundant and capacity withdrawals
occurred to strengthen the resolve and influence of It remains to be seen whether aviation will be one of
the remaining reinsurance underwriters. However, the most profitable classes for 2014.
with the current over-capacity, it is difficult to see
a sustainable upturn gaining momentum, unless
losses are very significant.
With original incomes falling, reinsurance buyers have
looked to reduce programme cost using loss record
as the main argument for reductions.
11Analysis. 12
Airline Insurance Market Outlook 2014
Quarterly analysis
The pattern of limited activity in the first quarter, average activity in the second and third
quarters and frenetic activity in the final quarter held in 2013.
Passenger
Total Renewals Fleet Value Premium Hull/Liability
Movement
2013
2012 2013 % change % change % change 2012 (US$m) % change
(US$m)
Quarter one 9 9 0% 20% 18% 25.05 29.21 17%
Quarter two 45 43 -4% 8% 10% 204.13 190.10 -7%
Quarter three 43 41 -5% 4% 12% 183.88 165.02 -10%
October 12 15 25% 6% 3% 97.87 90.59 -7%
November 34 33 -3% 7% 7% 212.76 204.70 -4%
December 62 62 0% 9% 6% 848.36 729.32 -14%
Analysis
Quarter four 108 110 2% 9% 6% 1,158.98 1,024.60 -12%
Total/Average 205 203 -1% 9% 7% 1,572.04 1,408.94 -10%
Source: Aon Risk Solutions
13Airline Insurance Market Outlook 2014
Airline quarterly premium profile Airline quarterly renewal profile
(Proportion of lead hull and liability premium) (Number of renewals)
Q1 ‘13 Q1 ‘13
2% Q2 ‘13 5%
13%
Dec ‘13
52% Dec ‘13 Q2 ‘13
31% 21%
Q3 ‘13
12%
Oct ‘13
6%
Q3 ‘13
Nov ‘13 20%
Nov ‘13 16%
15% Oct ‘13
7%
Airline quarterly premium profile Airline quarterly renewal profile
Average quarterly percentage premium change Quarterly percentage premium activity
(Proportion of lead hull and liability premium) (Number of renewals)
2000 - 2013
Source: Aon market data Source: Aon market data
Source: Aon Risk Solutions Source: Aon Risk Solutions
100% 100
75%
75
Percentage of change
Quarter
Percentage
four
50%
50
25%
25 Quarter
0% three
Quarter
two
Quarter
-25% 0 one
2001 2003 2005 2007 2009 2011 2013 2001 2005 2009 2013
Average quarterly percentage premium change 2000–2013
Source: Aon Loss Data Quarterly percentage premium activity Source: Aon market data
Source: Aon Risk Solutions Source: Aon Risk Solutions
14Airline Insurance Market Outlook 2014
Quarter one Quarter two
The first quarter of the year is exceptionally quiet Quarter two is also relatively quiet, with 21% of
in terms of airline insurance programme renewals. programmes placed representing around 13% of lead
Only 5% of 2013’s total number of insurance hull and liability premium. Despite this, the quarter
programmes were placed in Q1, representing a mere showed the re-establishing of the trend for lead hull
2% of the renewals. and liability reductions in the region of 10% which
had been in place since mid-way through 2012.
Because of its meagre size, any activity that does
take place has the potential to significantly skew the Exposure, represented by average fleet values
data, which is why the 17% lead hull and liability (AFV) and passenger number forecasts was slightly
increase stands out from the rest of the year’s higher than recorded for 2012/13 renewals (8%
trends. The increase was the result of four of the AFV and 10% pax in 2013/14, 5% and 4% in
programmes that were placed seeing their lead hull 2012/13 respectively).
and liability premium increase by more than 20%.
Nearly 80% of the renewals in the quarter saw the
This was based on significant fleet growth at three of
Analysis
cost of lead hull and liability premium fall.
the airlines and an incident at the fourth.
15Airline Insurance Market Outlook 2014
Quarter three Quarter four
Quarter three continued the trend that has been The final quarter of the year dominates activity in
in place since mid-way through 2012, with lead the airline insurance market, with nearly 55% of
hull and liability premium reductions of around programmes and just under 75% of total lead hull
10% coupled with exposure increases. The AFV and liability premium placed. As a result, premium
numbers for the quarter are somewhat suppressed and exposure movement for the quarter closely
by a significant fleet reduction at one of the larger resembles the annual changes.
renewals. Stripping this out of the data would have
December alone represents over half of the total
meant that AFV would have climbed by 9%, far more
annual premium, driven by a little under a third of
in line with the current trend.
the total number of programmes being placed.
Again, around 80% of renewals in the quarter saw
Reflecting economies of scale that the industry’s
the cost of lead hull and liability premium fall. larger fleets can command, around 85% of
programmes placed during the final quarter of 2013
saw their lead hull and liability fall.
16Airline Insurance Market Outlook 2014
Regional analysis
The Percentage
regionallead
insurance data
hull and liability suggests a far stronger global trend than has been in evidence
premium
change by average fleet value 2013 Percentage average fleet value
than over the last few years. change by region 2013
Asia Pacific -6% Middle East 14%
Total/Average -10% Latin America 11%
Europe -11% Asia Pacific 10%
Latin America -11% Total/Average 8%
Middle East -12% North America 5%
North America -12% Europe 5%
Africa -14 % Africa 3%
-20% -15% -10% -5% 0% 0% 10% 20%
Percentage lead hull and liability premium change Percentage
Percentage passenger
average fleet valueprojection
change by region 2013
Analysis
by region 2013 change by region 2013
Source: Aon Risk Solutions
Source: Aon Risk Solutions Source: Aon market data
Source: Aon market data
Middle East 15%
Africa 13%
Asia Pacific 9%
Latin America 9%
Total/Average 7%
Europe 6%
North America 4%
0% 10% 20%
Percentage passenger projection change by region 2013
Source: Aon Risk Solutions
Source: Aon market data
17Airline Insurance Market Outlook 2014
Africa
Airlines in Africa had the largest average hull and were under five years old, one in Ethiopia and one in
liability premium reduction of any of the regions for Mozambique. Neither of these were in the list of five
their 2013/14 insurance programmes. This was the most expensive losses in Africa since 1995.
result of reductions at the majority of programmes in
The other three losses in 2013 were to aircraft that
the region, driven by five-year credit balance that has
were built over two decades ago. Fatalities were
nearly tripled (from an admittedly low base) coupled
confined to two of the five losses.
with a relatively stable average fleet value.
The number of claims in Africa was below the long
term average in 2013, but the value was higher.
From a claims value point of view, the majority of
the value came from the loss of two aircraft that
18Airline Insurance Market Outlook 2014
Regional premium and exposure movement
2005-13 Africa
45
Premium
2013 claims
40 AFV
Passengers 2013
35 1995–2012
2012 2013 compared
average
Percentage change
30 to 2012
25 Number of
8 7 5 -29%
20 incidents
15 Value of claims
105 68 124 81%
10 (US$m)
5 Number of
115 165 38 N/A
fatalities
0
-5 Source: Aon Benfield
-10
2013/14 insurance forecasts
-15
-20 2012 2013 % change
2005 2007 2009 2011 2013 Total renewals 17 18 6
Analysis
Source: Aon market data Premium (US$m) 85.65 73.72 -14
Regional premium and exposure movement
2005–2013 Africa Total AFV (US$m) 20,288.90 20,883.53 3
Source: Aon Risk Solutions
Total passengers (m) 54.31 61.18 13
Average liability limit
958.33 1,000.00 4
(US$m)
Cost per passenger
1.58 1.21 -24
(US$)
Credit balance (US$m) 37.10 103.79 180
Average aircraft value 33.69 34.61 3
Source: Aon Risk Solutions
19Airline Insurance Market Outlook 2014
Asia Pacific
Exposure forecasts in the Asia Pacific region have Similar to Africa, the number of incidents and the
continued to grow consistently by around 10% each number of fatalities were below the long-term
year since 2010, with lead hull and liability premium average in 2013, but high average aircraft value
falling since 2012. The region is now the largest in meant that the value of claims was significantly
the industry in terms of passenger numbers and higher. A single loss represented nearly two thirds
average fleet value. The influx of new hardware over of the total value of claims for the region in 2013.
the last five years means that the average value of Given that it was a passenger aircraft which was lost,
aircraft in the region is only surpassed by the Middle there was the potential significant loss of life in the
East, but has fallen as a result of overall fleet growth. incident. It is testament to the airline industry’s work
The number of aircraft in service in the region that on safety that fatalities were not higher.
meet the criteria for inclusion in this report has risen
from 5,061 to 6,154 between 2012/13 and 2013/14
insurance policies.
20Airline Insurance Market Outlook 2014
Regional premium and exposure movement
2005-13 Asia Pacific
45
Premium
2013 claims
40 AFV
Passengers 2013
35 1995-2012
2012 2013 compared
average
Percentage change
30 to 2012
25 Number of
18 16 15 -6%
20 incidents
15 Value of claims
284 139 524 277%
10 (US$m)
5 Number of
194 152 64 -58%
fatalities
0
-5 Source: Aon Benfield
-10
2013/14 insurance forecasts
-15
-20 2012 2013 % change
2005 2007 2009 2011 2013
Total renewals 56 56 -
Analysis
Source: Aon market data
Regional premium and exposure movement 2005–2013 Asia Pacific Premium (US$m) 444.76 416.50 -6
Source: Aon Risk Solutions
Total AFV (US$m) 287,120.47 317,232.01 10
Total passengers (m) 962.30 1,052.90 9
Average liability limit
1,320.54 1,272.14 -4
(US$m)
Cost per passenger
0.46 0.40 -14
(US$)
Credit balance
906.13 656.04 -28
(US$m)
Average aircraft value 56.73 51.55 -9
Source: Aon Risk Solutions
21Airline Insurance Market Outlook 2014
Europe
Around 75% of airline insurance programmes in 500 aircraft forecast to be in service in a region
Europe saw the cost of lead hull and liability premium which is relatively mature from the perspective of
fall on 2013/14 insurance programmes. This was the the aviation industry.
result of continued steady growth in exposures and
Compared to 2012, the value of claims in 2013 was
the recovery of the region’s five year credit balance
high, but still well below the long term average,
from the significant decline witnessed in 2011. Only
as was the number of incidents and number of
seven of the region’s 66 renewals saw their credit
fatalities. The fatalities were confined to a single
balance decline, and Europe’s five year credit balance
incident, which also represented around a third of
is now the highest of any of the six regions.
the total claims value.
Average aircraft value was relatively stable in the
region, falling by only 2%, influenced by an extra
22Airline Insurance Market Outlook 2014
Regional premium and exposure movement
2005-13 Europe
45
Premium
2013 claims
40 AFV
Passengers 1995– 2013
35
2012 2012 2013 compared
30 average to 2012
Percentage change
25
Number of
16 7 7 0%
20 incidents
15
Value of claims
252 63 103 64%
10 (US$m)
5 Number of
92 - 44 -
0 fatalities
-5 Source: Aon Benfield
-10
-15 2013/14 insurance forecasts
-20
2005 2007 2009 2011 2013 2012 2013 % change
Total renewals 68 66 -3
Analysis
Source: Aon market data
Regional premium and exposure movement 2005–2013 Europe Premium (US$m) 466.13 413.83 -11
Source: Aon Risk Solutions
Total AFV (US$m) 221,633.78 233,068.65 5
Total passengers
908.98 960.34 6
(m)
Average liability
958.48 946.36 -1
limit (US$m)
Cost per
0.51 0.43 -16
passenger (US$)
Credit balance
596.64 812.86 36
(US$m)
Average aircraft
35.91 35.21 -2
value
Source: Aon Risk Solutions
23Airline Insurance Market Outlook 2014
Latin America
Despite strong growth in both average fleet value Major incidents involving Latin American airlines in
and passenger numbers, the strong competition in 2013 were low for the second consecutive year in
the airline insurance markets continues to drive down terms of value, incidents and numbers of fatalities.
the overall cost of insurance in Latin America. The two incidents that did occur both involved
older aircraft.
The average fleet value in Latin America has grown
by around 10% each year since 2008, although its Premium levels in Latin America are lower than they
fleet is still relatively small in global terms. Average might be as a result of a number of airlines in the
aircraft value was basically stable for 2013/14, and region being placed as part of a major European
while values lag well behind the Middle East and group programme.
Asia Pacific, Latin American average aircraft value is
Airline carriers in the region also seem poised for
currently the third highest in the world.
consolidation given the current industry conditions.
Credit balance has been driven down considerably Whether this occurs in 2014 remains to be seen,
in the region as a result of three airlines having but analysts suggest that there are major synergies
a negative result for their 2013/14 insurance potentially available.
programmes. These appear to have been the result
of minor claims.
24Airline Insurance Market Outlook 2014
Regional premium and exposure movement
2005-13 Latin America
45 Premium 2013 claims
40 AFV
Passengers 1995– 2013
35
2012 2012 2013 compared
Percentage change
30 average to 2012
25 Number of
9 1 2 100%
20 incidents
15 Value of
10 claims 131 5 11 116%
(US$m)
5
Number of
0 98 - 7 -
fatalities
-5
Source: Aon Benfield
-10
-15 2013/14 insurance forecasts
-20
2005 2007 2009 2011 2013 2012 2013 % change
Source: Aon market data Total renewals 14 15 7
Analysis
Regional premium and exposure movement 2005–2013 Latin America
Premium
78.88 69.92 -11
Source: Aon Risk Solutions (US$m)
Total AFV
26,696.68 29,635.05 11
(US$m)
Total passengers
141.61 153.99 9
(m)
Average liability
970.00 992.73 2
limit (US$m)
Cost per
0.56 0.45 -18
passenger (US$)
Credit balance
147.68 120.07 -19
(US$m)
Average aircraft
37.33 37.31 0
value
Source: Aon Risk Solutions
25Airline Insurance Market Outlook 2014
Middle East
The Middle East’s exceptionally ambitious plans for Despite this rise, lead hull and liability premium has
growth and development and a reduction in reliance fallen by more than 10% for a third consecutive year
on the petro-chemical industry are exemplified by and total passenger numbers are expected to rise by
aviation. Continued investment in wide-body aircraft 15%. This growth pattern that has been in place for
means that average aircraft values in the region nearly a decade.
are forecast to rise by more than 15% during the
After a spectacularly low value of claims in
course of 2013/14 insurance programmes. As a
the Middle East in 2012, 2013 similarly saw very few
result, the average aircraft will be valued at US$77
incidents. The value of claims is higher as a result of
million, compared to a global average of around
one of the aircraft that was damaged (while parked)
US$38 million.
being under five years old.
26Airline Insurance Market Outlook 2014
Regional premium and exposure movement
2005-13 Middle East
45 Premium 2013 claims
AFV
40
Passengers 1995– 2013
35
2012 2012 2013 compared
30 average to 2012
Percentage change
25
Number of
3 1 2 100%
20 incidents
15 Value of
10 claims 58 1 16 1500%
(US$m)
5
0 Number of
23 - - -
fatalities
-5
Source: Aon Benfield
-10
-15 2013/14 insurance forecasts
-20 2012 2013 % change
2005 2007 2009 2011 2013
Source: Aon market data Total renewals 20 20 -
Analysis
Regional premium and exposure movement 2005–2013 Middle East Premium (US$m) 106.47 93.41 -12
Source: Aon Risk Solutions
Total AFV (US$m) 75,337.78 85,734.41 14
Total passengers (m) 138.45 158.78 15
Average liability
1,330.00 1,317.50 -1
limit (US$m)
Cost per passenger
0.77 0.59 -24
(US$)
Credit balance
121.59 162.38 34
(US$m)
Average aircraft
66.00 76.59 17
value
Source: Aon Risk Solutions
27Airline Insurance Market Outlook 2014
North America
After virtually no exposure change in North America This suggests that the aviation industry has not
for 2012/13 insurance programmes, average finished its protracted period of uncertainty. The
fleet value is forecast to rise by 5% and passenger number of aircraft insured under standard hull and
numbers by 4% during 2013/14 insurance liability programmes has risen from 6,437 to 7,448.
programmes. While it would be difficult to describe
Three of the four incidents in 2013 in North America
this as stellar growth, the region is undoubtedly the
involved cargo aircraft. One of these represented just
most mature aviation market globally. As a result, any
under half of the total value of claims for the year.
growth could be deemed to be impressive.
Overall however, claims were once again very low in
Average aircraft value however, is expected to fall by terms of value, frequency and numbers of fatalities
around 10%, making it the lowest in the world. compared to long-term averages.
28Airline Insurance Market Outlook 2014
Regional premium and exposure movement
2005–13 North America
45 Premium
2013 claims
AFV
40
Passengers 1995– 2013
35
2012 2012 2013 compared
30 average to 2012
Percentage change
25
Number of
20 14 10 4 -60%
incidents
15
Value of claims
10 263 73 125 73%
(US$m)
5
0 Number of
63 1 0 -100%
fatalities
-5
Source: Aon Benfield
-10
-15 2013/14 insurance forecasts
-20
2005 2007 2009 2011 2013 2012 2013 % change
Analysis
Source: Aon market data Total renewals 26 28 8
Regional premium and exposure movement 2005–2013 North America
Source: Aon Risk Solutions Premium (US$m) 390.15 341.56 -12
Total AFV (US$m) 161,388.67 170,046.87 5
Total passengers (m) 783.72 812.68 4
Average liability
1,218.75 1,195.57 -2
limit (US$m)
Cost per passenger
(US$)
0.50 0.42 -16
Credit balance
(US$m)
1,198.51 644.20 -46
Average aircraft
value
25.07 22.83 -9
Source: Aon Risk Solutions
29Airline Insurance Market Outlook 2014
Sector analysis
Lead hull and liability premium has fallen fairly universally over the last year, with only
the cargo sector bucking the trend.
Total renewals Premium
2012 2013 % change 2012 (US$m) 2013 (US$m) % change
Flag 65 66 +2% 941.40 821.50 -13%
International 24 21 -13% 135.15 114.01 -16%
Charter 26 24 -8% 60.54 56.63 -6%
Regional 38 42 +11% 174.86 166.69 -5%
Cargo 14 13 -7% 80.23 88.96 +11%
Other 6 7 +17% 7.43 7.38 -1%
Low-cost 32 30 -6% 172.43 153.77 -11%
Total/Average 205 203 -1% 1,572.04 1,408.94 -10%
Fleet value Passengers
Total (US$bn) % change Total (m) % change
Flag 576,176.50 10% 1,953.65 7%
International 73,737.33 1% 275.40 6%
Charter 21,017.00 6% 83.56 5%
Regional 42,131.14 7% 248.02 10%
Cargo 47,239.02 -6% N/A N/A
Other 5,477.48 17% 2.75 0%
Low-cost 90,822.05 8% 635.77 8%
Total/Average 856,600.52 8% 3,199.86 7%
Source: Aon Risk Solutions
30Airline Insurance Market Outlook 2014
Average liability limit Cost per passenger Credit balance (US$)
2013 (US$m) % change Total (US$) % change 2012 2013
Flag 1,455.17 -3% 0.42 -18% 1,327.96 865.23
International 1,283.38 -2% 0.41 -20% 501.66 468.54
Charter 979.58 2% 0.68 -11% 164.69 160.96
Regional 695.00 -1% 0.67 -14% 273.65 300.54
Cargo 1,109.62 0% N/A N/A 63.41 12.90
Other 878.57 -3% 2.69 -1% 9.81 33.22
Low-cost 1,005.00 0% 0.24 -17% 666.47 657.94
Total/Average 1,115.35 -1% 0.44 -16% 3,007.65 2,499.33
Analysis
Source: Aon Risk Solutions
31Airline Insurance Market Outlook 2014
Percentage lead hull and liability
premium change by sector 2013 Percentage average fleet value
change by sector 2013
Cargo 11% Other 17%
Other -1% Flag 10%
Regional -5% Total/Average 8%
Charter -6% Low-cost 8%
Total/Average -10% Regional 7%
Low-cost -11% Charter 6%
Flag -13% International 1%
International -16% Cargo -6%
-20% -10% 0% 10% 20% -10% 0% 10% 20%
Percentage
Percentage lead passenger
hull and liability projection
premium change by sector 2013 Percentage average fleet value change by sector 2013
Source: Aon market data
change by sector 2013
Source: Aon Risk Solutions Source: Aon market data
Source: Aon Risk Solutions
Regional 10%
Low-cost 8%
Total/Average 7%
Flag 7%
International 6%
Charter 5%
Other 0%
0% 5% 10% 20%
Source: Aon market data
Percentage passenger projection change by sector 2013
Source: Aon Risk Solutions
32Airline Insurance Market Outlook 2014
Flag International
Reflecting its position as the largest of the sectors In terms of fleet value, the international sector
both in terms of both premium and numbers of is the third largest in the airline industry. After
renewals, flag carriers enjoyed the second largest significant exposure increases forecast on 2012/13
average reduction in lead hull and liability premium insurance programmes, the sector has been fairly
on 2013/14 insurance programmes. modest in its growth projections for 2013/14. As
a result, lead hull and liability premium on average
Average fleet value is forecast to rise significantly,
is due to fall at the fastest rate in the industry.
reflecting the delivery of new aircraft to major
airlines around the globe. The availability of new The reductions are fairly uniform across the sector,
wide-body aircraft is also reflected in the increase in with only two of the 21 recorded renewals having
projected passenger numbers. to endure an increase in lead hull and liability
premium, in one case the result of an increased loss
Analysis
Credit balance in the sector has dropped by around
ratio, the other the result of a significant increase
a third as a result of a couple of major incidents,
in departures.
although number of fatalities insurable under
standard hull and liability policies was limited.
33Airline Insurance Market Outlook 2014
Charter Regional
After falling last year, the charter sector is forecasting Regional airlines have once again suffered a relatively
a modest 6% increase in average fleet value during low premium reduction, although it has come at
the course of the 2013/14 insurance programmes. the same time as the highest increase in forecast
Average aircraft value continues to decline, passenger numbers. Average fleet value increases
potentially reflecting the knock-on effect of flag and themselves have been modest.
international carriers embarking on fleet replacement
Similar to the charter sector, some of this change will
programmes over the last two years, which have in
be related to the availability of relatively new aircraft
turn suppressed the value of slightly older but no less
in the second hand market as international and flag
functional aircraft that make up the majority of the
carriers roll out new generation aircraft.
charter fleet.
There tends to be less underwriting competition
The fall in passenger numbers forecast on 2012/13
for this sector because the relatively low premium
charter airline insurance programmes was not
volumes can be quickly eroded by minor claims.
repeated for 2013/14 programmes. This suggests
that the more stable economic conditions are having
an impact.
34Airline Insurance Market Outlook 2014
Cargo Low-cost
After attracting strong support from the underwriting The low-cost sector enjoyed an 11% lead hull and
community and enjoying 10% lead hull reductions in liability premium reduction on average for 2013/14
2012/13, a string of claims in the cargo sector during insurance programmes. This was the result of 25 of
2013 has meant that sentiment towards the sector the 30 renewals in the sector seeing the cost of lead
has dipped. The cargo sector is the only one to have premium fall. The five with premium growth also had
endured average premium increases. strong exposure growth in the form of average fleet
value and passenger forecast increases.
On examination however, 12 of the 13 renewals
actually saw their lead hull premium fall. The The number of aircraft insured under airline hull and
thirteenth, one of the world’s largest cargo carriers liability premium programmes has risen from 1,973
has seen its five year credit balance decline for two for 2012/13 programmes to 2,824 for 2013/14
consecutive years as a result of losses. The increase programmes. Again, this is likely to reflect the ripple
that this airline has suffered has changed the average effect from the commercial introduction of new
data for the sector. generation wide-body aircraft at the top end of the
Analysis
market changing the dynamics of the mid-range
sector. More stable global economic conditions are
also likely to be a factor.
35Airline Insurance Market Outlook 2014
Fleet value analysis
Unusually the largest fleets did not enjoy the most significant lead hull and liability
premium reductions.
Examining the global aviation fleet by bands of fleet have invested heavily. Over 75% of the 25 fleets in
value usually delivers a simple standard trend: the this band are expecting to increase the value of their
larger the fleet the larger the lead hull and liability fleet during the course of their 2013/14 insurance
premium reduction. programmes, 13 of which by more than 10%.
Insurance renewals for 2013/14 are different, This is not likely to be a long term change however,
however. The largest exposure increases occurred to and is directly related to the commercial launch and
airlines with an average fleet value (AFV) of US$500 increasing availability of the new generation wide-
million-US$1 billion, the band which also attracted body aircraft at the start of the decade. There is a
the best reductions in lead hull and liability premium. chance that the ripples from the fleet investments
This band also saw the value of average aircraft rise will continue to be felt for the next couple of years,
by 27%, although this lagged behind the three larger but they are likely to become less pronounced and
AFV bands. the natural order of the airline insurance market, that
the largest fleets attract the best insurance deals, will
The fleet value increases in the US$500 million-US$1
be reasserted.
billion range are not confined to a few airlines that
36Airline Insurance Market Outlook 2014
Percentage lead hull and liability premium
Percentage average fleet value change
change by average fleet value 2013
by average fleet value 2013
US$150–500m -7% US$500m–1bn 15%
Analysis
US$1–2bn -9% US$5bn+ 8%
US$2–5bn -10% Total/Average 8%
Total/Average -10% US$1–2bn 8%
US$5bn+ -11% US$2–5bn 7%
US$500m–1bn -15% US$150m–500m 1%
-20% -15% -10% -5% 0% 0% 5% 10% 15% 20%
Percentage lead hull and liability premium change by Percentage average fleet value change by
average fleet value 2013
Percentage passenger projection Source:
change Aon market data average fleet value 2013 Source: Aon market data
by average fleet value 2013
Source: Aon Risk Solutions Source: Aon Risk Solutions
Analysis
US$500m–1bn 20%
US$2–5bn 9%
US$1–2bn 7%
Total/Average 7%
US$5bn+ 6%
US$150m–500m 4%
0% 5% 10% 15% 20% 25%
Percentage passenger projection change by
Source: Aon market data
average fleet value 2013
Source: Aon Risk Solutions
37Airline Insurance Market Outlook 2014
Inclusion criteria/notes
The information featured in this report is Rate and premium movement percentages are based
representative of market trends only. With vertical or on the London nett lead hull and liability terms.
fragmented marketing, sourcing exact percentage
Five year credit balance describes the difference
rate movements and/or shifts in premiums can
between the total value of claims and the total
sometimes prove difficult.
amount of premium collected over five years.
Our analysis is therefore representative of airline
Insurance cost per passenger is worked out by taking
programmes with an insured average fleet value
the total cost of hull and liability premium for an
equal to or greater than US$150 million. Average
industry segment and dividing it by the total number
fleet values are the average projected value of a fleet
of expected passengers.
during the entire length of an insurance programme,
rather than at a specific date. Where airlines have replaced their programmes or
have implemented short-term policies, the full annual
Flag carriers are classified as national airlines,
figures have been used for calculation purposes on
international carriers are airlines that fly
their accounts. If placements have changed, through
intercontinental but are not flag carriers.
the addition or deletion of airlines, no allowance has
been made in the expiring figures.
38Airline Insurance Market Outlook 2014
Unless otherwise stated, all data is based on Aon Due to the sensitive nature of the issues involved, the
market data. Aon loss data is based on information losses overview features only those incidents with an
from Aon Benfield Aviation Reinsurance and loss data incurred hull and liability loss value of US$1 million
excludes 9/11. The loss regions are based on the or above.
domicile of the airlines involved, rather than where
We must point out that due to the nature of this
the loss occurred.
type of document, Aon cannot be held responsible
It should also be noted that for comparison purposes for any loss or damages caused through the use of
all local currencies are converted to US dollars. any information contained herein. While we try to
comment on issues we know to be fact, we are fully
This review examines on western built, non-military
aware that in gathering the information contained
aircraft and airline organisations only.
herein from various sources there is always the
Unless otherwise stated long-term loss refers to the possibility of inaccuracy. We can therefore only claim
period 1995 to 2012. that the information is correct to the best of our
knowledge at the time of publication.
Please note figures may differ due to rounding.
Analysis
39For more information, please contact:
Mike Smith John Levack Peter Schmitz
Aviation and Space Chief Broking Officer, Aviation Chief Executive Officer
Business Leader john.levack@aon.co.uk Global Aviation Specialty
mike.smith@aon.co.uk +44 (0)20 7086 4555 peter.schmitz@aon.com
+44The
(0)20aerospace
industry continued to defy gravity
7086 4568 +1 212 4793 220
Mike Crozier
during 2010, continuing aHead
David Reed
trend laid down in 2007.Tracy Toro
of Airline
Chief Commercial Officer, Aviation mike.crozier@aon.co.uk US Aviation Practice Leader
david.reed@aon.co.uk +44 (0)20 7216 3094 tracy.toro@aon.com
+44 (0)20 7086 2980 +1 212 4793 233
Paul Mitchell
Head Business Analyst, Aviation
paul.mitchell@aon.co.uk
+44 (0)20 7086 3641
FP: 8693
Aon Risk Solutions | Global Broking Centre | Aviation
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