Willis Group has stated that airline insurance premiums fell by double digits during 2012. The decline accelerated towards the end of the year to Nov-2012’s 16% year on year fall.
Although some $100 million in premiums has been removed from the global markets and Willis expects the downward path to continue, the fact that airlines are buying more aircraft means that many insurers are still in the black and that payouts have been low and few.
Willis says that 2012 was an exceptionally safe year: “The industry loss experience continues to be excellent with 2012 remaining on track to the best ever year in terms of airline losses. There have been USD226 million of hull losses, USD43 million of liability losses and USD412 million of attritional losses. This generates an overall total of just USD681 million after 11 months of the year. There have been just six major losses in excess USD10m and in only one of these were there any fatalities.”
The insurer warns however that US airlines may have to pay higher insurance rates than others as the US airline contract and consolidate.
Willis states that consolidation in the US market has “impacted growth levels” and “brought about an improvement in fleet age” resulting in a “difference in risk profile and experience (which) is in contrast with other areas of the world that are experiencing rapid growth”. Nonetheless, because their fleets are not expanding, US airlines may not qualify for the sort of steep volume discounts that are occurring elsewhere – because that would “involve real premium erosion”.
In Asia, Chinese airlines have become a major market for aviation insurance. Willis estimates that the Chinese aircraft fleet value due for renewal at $74.25 billion. With such growth and the fact that China’s safety record has been among the best in recent years, premiums are likely to fall in unit terms.
Overall, Willis sees premium reduction of 10%, or $195 million, for the year.