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A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
Aerospace Insurance Market report 2014:
Serene, tranquil, calm
Foreword 2
Executive summary 3
Overview
Overview 5
Claims overview 8
Aviation reinsurance market 11
Analysis
Quarterly/monthly analysis 13
Sector analysis 15
Regional analysis 25
Liability limit analysis 30
Inclusion criteria/notes 32
Mar
ket
repo
rt
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4O
verv
iew
Ana
lysi
s
The role of insurance in the aerospace sector
continues to be central. Despite falling prices and
rising exposure, an exceptional claims record overall
and constantly improving technology, working
practices and risk analysis, organisations need to
ensure that they have a firm grip on the risks they face
and understand where they are exposed.
Aon’s aviation experts work closely with colleagues
across the business to ensure that our clients’ risk
management and insurance programmes are
comprehensive, cost effective and above all clear.
We ensure that our clients benefit from the latest risk
management techniques, explained clearly and with
an understanding of the impact that they can have
on a business.
The need for positive engagement with the
insurance markets continues unabated. Making sure
that underwriters understand the challenges your
organisation faces is likely to help them see your
insurance programme in a positive light, and will put
you in the position of being able to enjoy the best
of the reductions that are currently available in the
aerospace insurance markets.
It’s been nearly a decade of soft market conditions,
and while there’s little evidence of a change on
the horizon, at some point prices will start to rise.
Organisations with a good relationship with the
markets are likely to feel the change last.
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.
Low-claims and strong underwriting competition have meant that insurance prices in the aerospace sector have continued to fall. The soft markets have been in place for eight years, with little sign of change on the horizon.
Foreword
A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
2
Executive summary
■ Overall aerospace lead premium fell by 5% in reporting currency
■ Airport lead premium fell by 7%
■ Manufacturer lead premium was flat
■ Service provider lead premium fell by 16%
Premium: Lead premium in the aerospace sector
continued to fall, with the soft market conditions now
lasting for nearly a decade. While there has continued
to be talk of the market reaching its lowest point,
there is little reason to expect a significant change
for 2014/15 insurance prices (see page 5).
Capacity: Despite the falling prices, capacity looks
set to continue to be healthy for 2014/15 insurance
programme negotiations unless there are a string
of claims that look like they have the potential to
be abrogated back to the aerospace operators. As a
result of the robust level of capacity and competition,
underwriters continue to offer enhanced wording
on policies.
Airport: Total global airport premium fell by 7%,
the sixth consecutive year of decline. Average
passenger numbers are due to increase by 3% for
2013/14 insurance programmes, reflecting increasing
economic confidence globally (see page 16).
Manufacturer: There was no change in the average
cost of insurance premium for the manufacturing
sector. Over a third of manufacturers saw an increase
in the price of insurance, which correlated with
turnover increases (see page 19).
Service Provider: There is still little sign of the bottom
of the market being reached in the service provider
sector, where prices fell on average by 16%. The
market has been exceptionally soft since 2007
(see page 22).
A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
3
Highlights:
Mar
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4
4
A e r o s p a c e I n s u r a n c e M a r k e t O u t l o o k 2 0 1 2 / 1 3 T h e t r a n q u i l s e c t o r
Overview.
5
A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
Overview
The aerospace industry is comprised of a number of different business types and models operating in different sectors. Comparing a vast global airframe manufacturer with a liability limit of more than US$2 billion with an airport service provider with a turnover of below US$50 million can make reporting on overall trends something of a challenge.
The bottom line however is that the risk challenges
that companies in the aerospace sector face are similar
and global. What happens in one sector is likely to
have an impact on activity in another and the lessons
learnt in one region will sooner or later change
working practices elsewhere.
Insurance programmes for 2013/14 continued to
decline in price, the eighth year of the soft markets.
Despite talk by some underwriters that the bottom
of the market was visible, if anything renewal
results appear to have been even more aggressive,
particularly for non-manufacturers where limits are
US$1 billion or lower. In this situation there are
underwriters that can write 100% of the risk, which
is driving fierce competition. This has been particularly
notable in the service provider sector, where insurance
prices fell by around 16% on average to the
previous year.
Early indications are that the market in 2014
will continue the exceptionally soft conditions,
with consistently low loss levels attracting strong
underwriting capacity and making many buying
options available.
Renewals are still being looked at on an individual
basis however, and those with poor loss records
will find market conditions very different to the
underlying trend.
Ove
rvie
w
6
A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
In line with recent years we are also seeing some
renewals being retained in local markets rather than
coming into London, which is affecting the amount
of risks in our sample. Coupled with the falling price
of aerospace insurance, year on year premium income
has fallen significantly over the last decade.
Some operations have also increased their retained
limit, which has reduced the amount of premium that
they pay as they move to ensure that their insurance
programmes are as efficient as possible.
Underwriting conditions have been exceptionally
competitive and remarkably consistent over the last
few years. Comparing the average lead premium
change in the aerospace sector over the last eight
years with lead premium change in the airline
sector highlights the consistency of the aerospace
insurance market.
Prem
ium
(U
S$ m
illio
n)
1,000
875
625
750
5002005 2007 2009 2011 2013
2006 2007 2008 2009 2010 2011 2012 2013
Perc
enta
ge
chan
ge
20
10
15
5
0
-10
-15
-5
-20
Aerospace premium movement
Airline premium movement
Average annual percentage premium movement (original reporting currency percentage change)
Source: Aon Risk Solutions
Aerospace Nett Premium 2005–13
Source: Aon Risk Solutions
7
A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
Since 2006, average aerospace insurance prices
have fallen by between 1% and 5% each year. While
scrutiny on certain sectors and claims activity has
meant that individual price changes have varied
in comparison with the airline sector, where the
average price change has fluctuated between -18%
and +20%, the aerospace sector has been serene.
At first glance this could appear to be somewhat
academic, but from a financial planning point of
view, it gives aerospace companies a relative degree
of certainty that has been missing from the accounts
of their airline cousins.
Grounding liability limits riseThe grounding of the 787 Dreamliner in 2013 raised
the profile of grounding liability within the aerospace
industry and highlighted the potential levels of
exposure that can occur as a result.
Coverage for grounding liability insurance has, for
many years, been exclusively available to prime
manufacturers and subject to a capped liability
sub-limit of US$125 million in any one grounding
and in the aggregate (or policy limit whichever is
the smaller). In recent years however, the market has
been able to offer an increased sub-limit for prime
airframe and engine manufacturers of US$250 million
in certain circumstances.
One Lloyd’s insurer has subsequently developed
a standalone excess grounding product offering
capacity of US$125 million any one occurrence and in
the aggregate excess of a client’s existing grounding
limit. The Aircraft Builders’ Council soon followed and
now offers clients a smooth limit of US$250 million
any one occurrence and in the aggregate, for an
additional premium.
In light of the raised profile we are now seeing insurers
offering the increased limit to their wider client base,
subject to additional premium.
If you would like to discuss these changes further,
please contact your Aon client executive or email
Ove
rvie
w
8
A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
Claims overview
From a claims point of view, for the second time in three years, there were fewer than 200 fatalities in the aviation industry insurable under standard hull and liability programmes.
According to Aon Risk Solutions data, 2013 had the
lowest number of insurable fatalities in the aviation
industry since 1995 when Aon Risk Solutions started
examining this sample of data. It was only the second
time since 1995 that the number of has been below
300 (the first time was in 2011, with 2012 still well
below the long-term average).
The total number of incidents that resulted in claims
was also exceptionally low, with only 35 recorded,
compared to 69 on average between 1995 and 2012.
Valu
e of
clai
ms
(US$
mill
ion
)
3,000
1997 2000 2003 2006 2009 2013
2,000
1,000
0
Including minor loss estimateExcluding minor loss estimateAverage (Including minor loss estimate)
Num
ber
of
inci
den
ts
Average, 1995–2012100
1995 1998 2001 2004 2007 2010 2013
75
50
25
0
Number of incidents, global 1995–2013
Source: Aon Benfield
Value of claims, global 1996–2013
Source: Aon Benfield
9
A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
This is the first time since 1995 that the number of
incidents valued at more than US$1 million has been
below 40 worldwide, but the third year in a row that
they have been under 50.
The world is complicated, however. Despite the
relatively low number of claims and the lowest
number of incidents for the best part of two decades,
the actual value of claims was relatively high.
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.
It represented over a third of the claims total for the
year. 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 given the low number of fatalities, it is
unlikely to have significant impact on the direction of
the airline insurance market.
1,250
1,500
1,000
750
500
250
01995 1998 2001 2004 2007 2010 2013
Average,1995–2012
Num
ber
of fa
talit
ies
Number of fatalities, global1995–2013
Number of fatalities, global 1995–2013
Source: Aon Benfield
Ove
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11
A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
Aviation reinsurance market
Reinsurance pricing in the aviation sector fell once again at the start of 2014, with programmes exhibiting little or no claims activity during 2013.
As a result of low loss activity, capacity remains
plentiful in the aviation reinsurance market despite
the incredibly low rating environment. While rates
have fallen for a number of years, the low level of
losses has meant that the sector has outperformed
many other classes of business. Rates on average fell
7.5% for each sub-class at January 1, continuing the
long-term trend.
However, with exposures growing and rates at
historical lows, should 2014 experience claims at the
level of the expected losses then some underwriters
could suffer negative returns on their aviation books.
In previous upturns, market capacity was much less
abundant and capacity withdrawals occurred to
strengthen the resolve and influence of the remaining
reinsurance underwriters. However, 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.
Vertical limits and retentions remained largely stable
in 2013 and are likely to remain so during 2014
unless there is a dramatic increase in loss frequency
that drives pricing to prohibitive levels. Like the direct
insurance market, some insurers have increased
retentions or taken co-insurance in the primary area
to meet budget expectations.
Many reinsurers are talking about the end of rate
reductions, but with some of the larger markets
still looking to grow we expect rates to fall further
in 2014.
Aviation is a very transparent class and analytics
are prominent in most underwriting decisions
albeit with a heavy weight being given to loss
record. Very few programmes now meet technical
pricing expectations.
Ove
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13
A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
Quarterly/monthly analysis
Number of renewals
2012 Premium (US$)
2013 Premium (US$)
% change (US$) % change (*RC)
Jan 32 35.68 34.84 -2% -5%
Feb 6 11.70 10.88 -7% -8%
Mar 15 12.61 11.01 -13% -11%
Q1 53 59.99 56.74 -5% -7%
Apr 28 88.87 85.48 -4% -9%
May 14 16.59 13.44 -19% -15%
Jun 27 49.16 47.54 -3% +1%
Q2 69 154.61 146.45 -5% -7%
Jul 46 222.43 218.90 -2% -1%
Aug 9 37.59 37.56 0% -6%
Sep 9 2.19 1.84 -16% -8%
Q3 64 262.21 258.30 -1% -3%
Oct 17 92.67 67.55 -27% -10%
Nov 18 75.27 73.26 -3% 0%
Dec 21 54.67 51.09 -7% -3%
Q4 56 222.61 191.90 -14% -4%
Total/Average 242 699.43 653.40 -7% -5%
* Reporting currency
Source: Aon Risk Solutions
Ana
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s
15
A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
Sector analysis
Renewals Premium
2012 2013 % change 2012 (US$m)
2013 (US$m)
% change (US$)
% change (RC)
Airport 87 87 0% $90.53 $84.77 -6% -7%
Manufacturer 117 110 -6% $576.74 $541.50 -6% 0%
Service Provider 47 45 -4% $32.16 $27.13 -16% -16%
Total/Average 251 242 -4% $699.43 $653.40 -7% -5%
The soft market conditions that have been in place for nearly a decade in the aerospace insurance market continued for 2013/14 insurance programmes, with little indication of a change in the short term.
Airport Service providerManufacturer
83%
4%
Premium
Number of renewals
36%
13%
45%
19%
-20% -10% 5%
Total/average
Service Provider
-7%
-5%
RC
US$Manufacturer
Airport-7%
-6%
-16%
-16%
-15% -5% 0%
-6%
0%
Premium and renewals by sector (proportion of US$ total)
Source: Aon Risk Solutions
Percentage premium change by sector 2012–2013 percentage change (US$ and reporting currency)
Source: Aon Risk Solutions
Source: Aon Risk Solutions
Ana
lysi
s
16
A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
Airports (including air traffic control)
GlobalThe cost of insurance in the airport sector worldwide
has been falling since around 2007. As a result of the
decline, in 2006, total lead premium for the airport
sector was around US$130 million per annum. It has
now fallen to just over US$80 million.
The falling price of insurance in the sector reflects two
key factors. On the one hand, the aviation industry
has enjoyed a protracted period with relatively few
claims, with few significant incidents in the airport
sector during the last eight years.
At the same time, the global economic downturn
that started in 2008 had a significant impact on
airport activity from an exposure point of view, with a
significant contraction in the numbers of take-offs and
landings between 2008 and 2011.
The corner has definitely been turned, with average
passenger numbers forecast to increase by around
3% worldwide during the course of 2013/14
insurance programmes.
The passenger forecasts by the airports compare to a
7% increase in passenger numbers made by airlines
themselves. The airlines’ forecasts have traditionally
been more bullish than those of the airports. For
further details of how the aerospace and airline
insurance markets compare, please contact the
Aon aviation team or email [email protected].
Perc
enta
ge
chan
ge
15
5
0
-15
-20
-5
-10
10
2006 2007 2008 2009 2010 2011 2012 2013
Airports average quarterly percentage premium movement (original reporting currency percentage change)
Source: Aon Risk Solutions
17
A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
AmericasAirports in the Americas forecast relatively modest
increases in both the number of passengers they
expect to carry and the number of aircraft they expect
to host during the course of 2013/14 insurance
policies. This ties in with relatively stable projections
put in place by the airlines themselves, which forecast
average passenger increases of 4% for North America
for their 2013/14 insurance programmes.
It should be pointed out that the airport data set for
the Americas is relatively small because of the high
number of renewals that are placed locally and as a
result not included in this analysis.
Asia PacificOf the 19 airport operators in the Asia Pacific region
that forecast passenger numbers as part of their
2013/14 insurance placements, 13 expect the number
of passengers using their operations to rise, generally
by around 5%. While this is slightly less bullish than
the 9% increase in passenger numbers forecast by
the airlines in the region, it does suggest that there is
broad agreement across the region that 2014 will be
another positive year for the aviation industry.
Airport passenger forecasts have always been
somewhat lower than the airline operators’ forecasts.
The cost of insurance premium rose at only two
airports in the region. One of the increases was only
marginal and the other was the result of two new
airports joining a group programme.
EuropeOnly four of the 45 European airport programmes
saw the cost of their lead premium rise for 2013/14.
Nearly half of the placements saw premium fall by
10% or more. Of the 22 airports that made passenger
forecasts available, the average passenger increase
was around 7%, a healthy rise in a mature region that
suggests the return of economic confidence.
Interestingly, the 32 airports and airport authorities
that forecast aircraft movements suggest that the
numbers of aircraft take-offs and landings in the
region will fall by 2% during the course of 2013/14
insurance programmes. This potentially reflects the
commercial introduction of new generation wide-
body aircraft.
Ana
lysi
s
Outlook for 2014/15At this stage there is little evidence of a change in
conditions in the airport sector in the short term.
Ultimately, the airport book of business continues to
offer stable returns for underwriters so capacity is likely
to continue to be healthy, driving down the price of
airport insurance.
That said, the soft markets have been in place for
nearly a decade, a significant length of time during
which the value of the market has drifted down year
on year, to the point where 2014/5 could see the
sector worth nearly half the US$130 million value it
held a decade ago.
Ultimately this suggests an efficient market, where
price reflects the perceived level of risk. As safety
procedures, technology and working practices
continue to improve, the experience of the mature
aviation sectors crosses over with the innovation
of emerging regions and risk modelling
techniques improve, the price is likely to
continue to drift down.
As a result, while the value of the market
has changed significantly over
the last ten years, there is little
reason to think that it has yet
reached its nadir.
18
A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
19
A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
Manufacturer
Global Representing over 80% of the premium placed in the
global aerospace insurance market, the manufacturing
sector continued its trend for being the least soft of
the three aerospace sectors. The premium movement
year on year remained flat on average for 2013/14
insurance programmes compared to 2012/13.
The main reason for the relatively tough stance
that underwriters take with manufacturer insurance
programmes is the perceived risk of a massive
incident subrogated back to an aircraft or aircraft
parts manufacturer.
Notwithstanding this, almost 70 of the 110
manufacturers that placed their programmes in the
global aerospace insurance markets saw their price
fall. Of the 40 placements where the cost of insurance
rose, the majority forecast a healthy or significant
turnover increase.
Looking at the maintenance, repair and overhaul
(MRO) sector, which is included with manufacturers
as a result of their similar risk profile, turnover is
forecast to be up at all but three of the 16 global
operations included in this report. Average turnover
increase is 23%, reflecting brisk business as a result of
reconditioning aircraft for new operators as the global
fleet renewal process continues. Lead premium, falling
on average for 11 of the 16 programmes, is due to fall
by nearly 5% on average.
Component and engine manufacturers are
expecting a 3% average increase in turnover,
although this is coupled with an average premium
increase of around 3%. The numbers are influenced
by three operations which have seen their premium
double as a result of claims and merger activity.
Perc
enta
ge
chan
ge
15
5
10
0
-15
-5
-10
2006 2007 2008 2009 2010 2011 2012 2013
Manufacturer average quarterly percentage premium movement (original reporting currency percentage change)
Source: Aon Risk Solutions
Ana
lysi
s
20
A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
Stripping these of the data and average premium
change would be -3%.
Airframe manufacturers have witnessed an average
fall in lead premium of 6%, with only two of the
18 included in the Aon data set seeing the price of
lead premium rise. This is heavily influenced by one
major renewal that has restructured its insurance
programme to retain more of the risk and reducing
the insurable aspect. Turnover for the sub-sector is
forecast to rise 4%.
AmericasPremium for the manufacturing sector represents
95% of the total placed in the Americas. While this
dominance could appear to be surprising given the
maturity of the aviation industry in North America, a
significant proportion of airports in the region place
their insurance in local markets, falling outside of our
data set as a result.
The 2% average reduction in lead liability premium in
the Americas is in line with the long term trend, which
has seen prices fall in the region by a little over 1% on
average since 2007.
Just under 60% of 2013/14 programmes saw their
premium fall, with five of the six service providers in
the region seeing premium come down by more than
15% at renewal.
Asia PacificThe Asia Pacific region is also dominated by
manufacturers, which contributed nearly 70% of
the annual aerospace insurance premium in 2013.
This continues a steady increase in the proportion of
total premium paid by manufacturers in the region,
which has risen from 55% in 2009/10 insurance
programmes to its current level.
The level of global premium that Asia Pacific
manufacturers represent continues to be around
5%, making it the third smallest region in terms of
manufacturing by some margin.
Average turnover growth for manufacturers continues
to be positive, averaging at around 13% for 2013/14
insurance placements in reporting currency. This
compares to a global average of 7%.
21
A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
EuropeReflecting the improving economic conditions,
manufacturers in Europe are forecasting a 9% average
increase in turnover during the course of 2013/14
insurance policies.
The size of potential claims against manufacturers
tends to be significant. Reflecting this increased
perception of risk, while the average premium change
for Europe as a whole was -7%, there was no change
in the cost of average premium among the 30
European manufacturer renewals.
One of the largest European aerospace programmes
increased its self-insured retention level of its 2013/14
insurance programme. This change will have
repressed the total premium for the year in
the region.
Outlook for 2014/15Given some of the challenges that have faced new
generation aircraft in the last 18 months, it seems
likely that the manufacturing sector will continue to
face scrutiny when placing insurance programmes.
This caution should be tempered somewhat. There
have been significant incidents and recalls during
the last couple of years which have caused major
challenges for airlines that have been forced to lease
replacement hardware to ensure that they can honour
their routes.
While there has been a significant grounding claim
(as discussed on p7), safety procedures and rigorous
testing of systems have meant that there have not
been any major hull or liability claims as a result
of the recall. As a result, there has not been major
activity in the aerospace insurance market, and
average prices are likely to hold their current position
for 2014/15 insurance programmes.
Ana
lysi
s
22
A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
Service provider
GlobalThe service provider sector has enjoyed positive
reception from underwriters over the last few years,
a trend that continued for 2013/14 insurance
programmes, where prices fell on average by 16%.
There are a number of reasons why service providers
tend to be dealt with more fairly than other sectors,
but one of the key factors is that in the majority of
cases claims tend to be relatively simple and resolved
quickly without the long tail, abrogation issues that
can arise in, for example, the manufacturing sector.
The service provider sector continues to be the
smallest in the aerospace industry, representing
around 4% of total premium. There are some wide
regional variations between its relative proportion
in Africa (19% of regional premium total) and
the Americas (1% of the regional premium
total), reflecting the relative prominence of the
manufacturing sector.
Only three of the 45 service provider programmes
placed for 2013/14 in the global insurance markets
incurred premium increases. Two of these were the
result of significant reductions in their five year credit
balance related to claims, the third the result of an
organisation increasing its third party war coverage
from US$50 million to US$150 million.
Perc
enta
ge
chan
ge
15
10
5
0
-15
-20
-5
-10
-25
2006 2007 2008 2009 2010 2011 2012 2013
Service provider average quarterly percentage premium movement (original reporting currency percentage change)
Source: Aon Risk Solutions
23
A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
AmericasOnly six service providers in the Americas place their
insurance in the global market, the rest relying on
local markets which are perceived as being able to
meet their risk management and insurance needs.
Five of these six placements saw the cost of their lead
premium fall by more than 15% for their 2013/14
insurance programmes.
Much of this reduction is likely to be related to a
falling amount of fuel forecast to be provided during
the course of the placements.
Asia Pacific Of the 11 service providers in the Asia Pacific region
that meet the criteria for inclusion in this report, all
bar one are refuellers. On average, these operations
expect to supply 5% more fuel during the course
of their 2013/14 insurance programmes, compared
to a flat global average. This supports the positive
passenger growth projections made by the airports in
the region. The growth in fuel supplied continues the
short term trend in the region.
Despite the growth in product supplied, the cost
of premium fell for nine of the 11 service providers
in the region. Premium growth was only witnessed
at operations where there was a significant
limit movement.
EuropeThe amount of fuel supplied by the 11 European
refuelling operations is forecast to fall by 2% on
average. This is likely to reflect the increased fuel
efficiency of even second hand aircraft in comparison
with the ones that they are replacing as the global
fleet renewal process continues.
Of the 19 European service providers overall,
17 are enjoying a reduction in the cost of lead
premium during the course of their 2013/14
insurance programmes.
Ana
lysi
s
2424
A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
Outlook for 2014/15The perennial question that faces the service provider
sector after six years of reductions is whether the price
of insurance reached its lowest ebb? At this stage the
evidence suggests not.
Demand for service provider risks as part of a balanced
underwriting portfolio continues to be high and
claims continue to be low and consistent, two traits
that underwriters find exceptionally alluring. There is
also the fact that refuellers represent nearly 80% of
the number of insurance programmes in the sector.
With the global fleet moving to more efficient aircraft,
the amount of fuel being supplied is also drifting
down, which also represents a gradual reduction in
risk that underwriters are being asked to carry.
In this type of environment the majority of service
provider insurance programmes are likely to
continue to see the cost of insurance fall, although
naturally there will be exceptions where there have
been claims.
The recovery of the global economy could slow
the rate of reductions somewhat during 2014/15 if
exposures start to rise, but the impact is likely to be
limited given that service provider contracts tend
to gradually increase rather than leap forward. As a
result, we expect insurance prices to continue
to decline.
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A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
Renewals Premium Premium composition 2012 2013 %
change2012
(US$m)2013
(US$m)%
change (US$)
% change
(RC)
Manf % Service Provider
%
Airport %
Africa 5 6 +20% $5.34 $4.46 -16% -18% 22% 19% 60%
Americas 76 68 -11% $379.07 $368.07 -3% -1% 95% 1% 3%
Asia Pacific 50 50 0% $44.06 $41.28 -6% -5% 61% 10% 29%
Europe 106 103 -3% $253.97 $223.67 -12% -7% 68% 7% 25%
Middle East 14 15 +7% $16.98 $15.92 -6% -8% 76% 9% 16%
Total/Average 251 242 -4% $699.43 $653.40 -7% -5% 83% 4% 13%
Regional analysis
Each of the regions saw premium change broadly in line with global averages, with the exception of Africa where volumes are very low and subject to fluctuations as a result.
Each of the regions saw premium change broadly in line with global averages, with the exception of Africa where volumes are very low and subject to fluctuations as a result.
56%
34%
3%
Middle East
Americas Europe
Premium
Number of renewals
43%
2%
28%
1%
21%
Asia Pacific
6%
6%
Africa
-20% -10% 5%
-6%
-8%
Total/Average
-18%Africa
-6%Middle East
Asia Pacific
-16%
-5%
-12%-7%
RC
US$Americas
-5%-7%
Europe
-3%-1%
-15% -5% 0%
Percentage premium change by region 2012/13–2013/14 (US$ and reporting currency)
Source: Aon Risk Solutions
Premium and renewals by region (proportion of renewals)
Source: Aon Risk Solutions
Source: Aon Risk Solutions
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26
A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
AmericasFrom a premium point of view, the Americas were
the most stable of the regions in terms of 2013/14
insurance programmes, with premium prices falling
on average by 1%.
Part of the reason for the ongoing stability is that the
region is dominated by manufacturers, representing
around 95% of total annual premium in the Americas.
Manufacturers were neutral in terms of the changing
price of premium for 2013/14 insurance placements
(see page 19).
Please note that there are a limited number of
renewals in Latin America that meet the criteria for
inclusion in this report (see page 32). As a result
we examine the Americas as a whole, rather than
breaking it down into North and Latin America. If
you would like analysis that is more closely aligned to
your region and sub-sector, please contact your Aon
representative or email [email protected].
Perc
enta
ge
chan
ge
15
5
10
0
-15
-5
-10
2007 2008 2009 2010 2011 2012 2013
Average quarterly percentage premium movement (Americas) (original reporting currency percentage change)
Source: Aon Risk Solutions
27
A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
Asia PacificOf the 50 insurance programmes based in the
Asia Pacific region, over 75% saw the price of lead
premium fall, a slight improvement on the global
position of just over 70%.
Average lead premium reductions in the region were
around the global average, with prices consistently
soft since around 2007.
Reflecting the changing composition of the
aerospace sector in the region, the proportion of
manufacturers continues to rise, climbing from around
55% in 2009/10 to just under 70% for 2013/14
insurance programmes.
Overall however, the Asia Pacific region is relatively
small in the aerospace sector. For 2013/14 placements
it represented well over 6% of the global total annual
lead premium. This is an increase on the less than
5% it represented for 2006/7 insurance programmes,
but it is still the third smallest region from a premium
perspective by some margin. It is interesting to note
that the proportion of the global total represented by
the Americas has also risen during the same period,
while the European proportion has declined from
around 40% to around 34%.
Perc
enta
ge
chan
ge
15
5
10
0
-15
-5
-10
2007 2008 2009 2010 2011 2012 2013
-20
Average quarterly percentage premium movement (Asia Pacific) (original reporting currency percentage change)
Source: Aon Risk Solutions
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A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
EuropeThe second largest region in the aerospace industry
in terms of lead premium, European placements
enjoyed better than average reductions in the price
of their insurance for 2013/14. Prices fell at 85%
of placements.
Overall, the aerospace operators in the region
have enjoyed six years of nearly uninterrupted soft
markets. The slight change in conditions at the end
of 2011 was driven by changes at five operators that
renewed during the period, one of which had a major
claim which the other four saw significant
exposure changes.
The region continues to be dominated by
manufacturers, which contribute around 75% of
total lead premium in the region. This is a significant
change on the position for 2006/7 renewals, when
manufacturers represented under 65% of renewals.
The change has been the result of merger activity
among airport operators, which have seen their
proportion of premium fall by around 10% from
over a quarter over the same period.
Perc
enta
ge
chan
ge
15
5
10
0
-15
-5
-10
2007 2008 2009 2010 2011 2012 2013
Average quarterly percentage premium movement (Europe) (original reporting currency percentage change)
Source: Aon Risk Solutions
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A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
Middle EastAerospace activity in the Middle East continues to
grow, but is still well below that of Asia, the Americas
and Europe. It currently represents around 2% of total
global premium, making it very difficult to discuss
trends in the region in any meaningful way.
Of the 15 renewals in the region, 11 saw the price of
lead premium fall, nine of which by more than 10%.
This means that while the region is small enough for
changes at a single operation to have ramifications
for the averages of the whole region, this was not the
case for 2013/14 placements.
Highlighting the prominence of the region as a global
transport hub, for 2010/11 placements, airports
represented 10% of the total premium in the Middle
East. For 2013/14 placements, airports represented
nearly 30% of total premium.
AfricaAfrica’s proportion premium continues to hover
around 1% of the global total. There are six
programmes in the region that meet the criteria
for inclusion in this report and are placed in the
London insurance markets. This is an increase on four
recorded in 2010, but activity remains negligible in
global terms.
With so few renewals there is a risk that a single
renewal could unduly influence the numbers for the
entire sub-sector. In the case of Africa in 2013, five of
the six aerospace insurance programmes were placed
with a reduction, four of which by more than 15%.
The region has enjoyed continued reductions in
the price of insurance since 2008/9, although the
soft market conditions have accelerated for
2013/14 placements.
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A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
Renewals Premium Premium composition
2012 2013 % change
2012 (US$m)
2013 (US$m)
% change (US$)
% change
(RC)
Manf % Service Provider
%
Airport %
US$2bn+ 21 19 -10% $302.58 $271.61 -10% -3% 97% 0% 2%
US$1.5-1.99bn 20 20 0% $86.04 $84.46 -2% -7% 72% 1% 27%
US$1-1.49bn 122 120 -2% $211.27 $204.33 -3% -3% 75% 6% 19%
US$750-999m 38 40 +5% $32.45 $31.27 -4% -8% 75% 12% 13%
US$500-749m 29 29 0% $36.20 $33.11 -9% -8% 49% 22% 29%
US$0-499m 21 14 -33% $30.87 $28.62 -7% -8% 83% 6% 10%
Total/Average 251 242 -4% $699.43 $653.40 -7% -5% 83% 4% 13%
Liability limit analysis
Larger liability limit operations are dominated by manufacturers and operations with smaller limits tend to be airports and service providers. At the smaller end of the scale, operations may be able to place their insurance in local markets. As a result, the premium changes are correlated to the sector averages.
Source: Aon Risk Solutions
31
A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
-15% -10% 5%
RC
US$
-8%-4%
US$750-999m
US$1-1.49bn -3%-3%
Total/average -7%-5%
-7%-5%
-2%US$1.5-1.99bn
-7% -5%
-8%-6%
US$500-749m -8%-9%
-8%US$0-499m-7%
-5% 0%
US$2bn+ -10%-3%
Premium by liability limit
Source: Aon Risk Solutions
42%
31%
5%
US$750-999m
US$2bn+ US$1-1.49bn
Premium
Number of renewals
12%
6%8%
4%
8%
50%
US$1.5-1.99bn
US $0-499m
13%
5%
16%
US$500-749m
Percentage premium change by liability limit 2012–2013 (US$ and reporting currency)
Source: Aon Risk Solutions
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32
A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
The information featured in this report is
representative of market trends only. With vertical
or fragmented marketing the exact percentage rate
movements and/or shifts in premium can sometimes
prove difficult.
Aon defines the aerospace industry as being
comprised of airframe, engine and component
manufacturers, airports and air traffic control
organizations, caterers, retailers and ground handlers,
refuellers, repair and service operations, security
companies, financiers and other service providers. We
group these into three sectors, manufacturers, airports
and service providers, based on their risk profiles and
operation type.
We focus throughout this review on lead premium
in reporting currency (RC), unless stated otherwise.
Looking at changes in premium that has been
converted into US dollar terms can complicate the
picture because it represents changes in the price of
currency, rather than changes in the cost of insurance.
Given the low level of activity from an aerospace
point-of-view we have included Latin American
operations within the overall Americas
regional summaries.
The airport sector includes air traffic control
(ATC) operations.
The manufacturer sector includes maintenance,
repair and overhaul (MRO) operations because of
their similar risk profiles.
Unless otherwise stated long-term loss refers to the
period 1995 to 2012.
Please note figures may differ due to rounding.
Due to the sensitive nature of the issues involved, the
losses overview features only those incidents with
an incurred hull and liability loss value of US$1m or
above. We must point out that due to the nature
of this type of document, Aon cannot be held
responsible for any loss or damages caused through
the use of any information contained herein. While
we try to comment on issues we know to be fact,
we are fully aware that in gathering the information
contained herein from various sources there is always
the possibility of inaccuracy. We can therefore only
claim that the information is correct to the best of our
knowledge at the time of publication.
Inclusion criteria/notes
33
A e r o s p a c e I n s u r a n c e M a r k e t r e p o r t 2 0 1 4
We must point out that due to the nature of this type
of document, Aon cannot be held responsible for
any loss or damages caused through the use of any
information contained herein.
While we try to comment on issues we know to
be fact, we are fully aware that in gathering the
information contained herein from various sources
there is always the possibility of inaccuracy. We can
therefore only claim that the information is correct to
the best of our knowledge at the time of publication.
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