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Airline Insight June & July 2012 1
INSIGHT
Airline insurAnce MArket OverviewThe major renewals of the past few months have unsurprisingly continued the current market trend with the premium volume reducing by 5% for the year thus far. At the same time both hull and liability exposure levels have continued to increase by single digit percentages. Capacity levels remain buoyant and the loss experience continues to be excellent. Overall market conditions therefore remain stable with the balance of power continuing to favour the buyers.
There have been a number of significant renewals across all regions and sectors in recent months. During May easyJet had a significant downturn in projected fleet and passenger exposures while in contrast and perhaps in a reflection of the global economic shift, Asian low cost carrier Air Asia projected double digit growth in both average fleet value and passenger volumes. The Virgin Group of airlines, the parallel arrangement that encompasses Virgin Atlantic, Virgin Australia and Virgin America, highlighted a downturn in projected exposures for Virgin Atlantic while the other two airlines demonstrated continued robust growth. The differing experience was reflected in the rating changes achieved by each of the airlines.
June offered little in the way of major renewals and with no change in the major market drivers there was a continuation of the downward rating trend. Despite 22 renewals the month generated less than 3% of the annual premium volume. Eva Airways was by far the largest programme in terms of exposures with Aegean Airlines and Olympic the two other large renewals.
July is the most significant month outside of the final quarter contributing nearly 10% of the annual premium volume. The July renewals include a number of North American renewals of market significance the largest of which is American Airlines followed by Fedex, Republic Airways and Pinnacle Airlines. Talk continues regarding further consolidation in the industry in the USA and any future changes would have a knock on effect to the insurance arrangements. Elsewhere the economic challenges being faced by Kingfisher Airlines are clearly reflected in their projected exposures with an 80% reduction in fleet value and 50% reduction in passenger numbers.
The single digit growth in exposures, combined with single digit premium reductions has been a consistent story for some time now and there will need to be a significant shift in one of the market drivers for any change in market conditions.
Contents
Airline Insurance Market Overview ..........................1
Market News ................................. 2
Losses Overview ........................... 3
Industry News ..............................4
Forthcoming Renewals .............. 5
The NewsleTTer for The AirliNe iNsurANce iNdusTry | JuNe & July 2012
ReNewal DISTRIbuTIoN % SHaRe aND PRemIum DISTRIbuTIoN % SHaRe
DECEMBER26%
DECEMBER42%
NOVEMBER17%
NOVEMBER19%OCTOBER
6%
Q3 22%
Q3 17%
Q2 13%
OCTOBER7%
Q12%
Q2 22%
Q1 7%
DECEMBER26%
DECEMBER42%
NOVEMBER17%
NOVEMBER19%OCTOBER
6%
Q3 22%
Q3 17%
Q2 13%
OCTOBER7%
Q12%
Q2 22%
Q1 7%
Airline Insight June & July 2012 2
2012 NeT % PRemIum aND exPoSuRe movemeNTS (Hull aND lIabIlITy)
No. oF ReNewalS
aFv % CHaNGe
Pax % CHaNGe
2011 NeT PRemIum
uS$ m
2012 NeT PRemIum
uS$ m
uS$ m PRemIum CHaNGe
PRemIum % CHaNGe
January 4 14% 25% 3.85 4.42 0.57 14.7%February 4 12% 7% 7.13 6.70 -0.43 -6.1%March 11 21% 23% 35.59 38.23 2.64 7.4% Q1 19 20% 21% 46.57 49.34 2.77 5.9%April 15 17% 23% 115.58 114.01 -1.57 -1.4%May 17 1% 1% 71.74 68.96 -2.79 -3.9%June 17 1% 2% 34.77 33.71 -1.06 -3.0% Q2 49 11% 14% 222.09 216.68 -5.41 -2.4%July 25 3% -2% 183.99 163.72 -20.27 -11.0%2012 Total 93 9% 9% 452.65 429.74 -22.92 -5.1%
MArket news aSIa CaPITal ReINSuRaNCe GRouP PTe lTD exPaNDS ITS avIaTIoN TeamAsia Capital Reinsurance Group Pte Ltd (ACR) have announced that Haiping Yuan will join its Aviation Team. She will assume her new responsibilities from August 2012.
Haiping is originally from Guangzhou and studied in Shanghai. She is well known in the aviation insurance market from her time in La Réunion Aérienne, Paris, France. In her six years as an aviation underwriter she has gained extensive experience in Airline and Product liability underwriting.
Haiping will now share her expertise in the Asia Pacific aviation market, bringing long term consistency to the ACR aviation team in Singapore.
wIllIS Global aeRoSPaCe oF THe ameRICaS: NoRTH ameRICaN ClaImS DIReCToR aNNouNCeDMike Peterson started with Willis Aerospace of the Americas in June.
Mike is appointed to the position of Senior Vice President and National Claims Director for North America. Since 2001, Mike was a litigator with Condon & Forsyth working on a number airline accounts handling personal injury, cargo and aircraft collision cases. During this time he was also involved with various products, insurance coverage and commercial related matters including EgyptAir Flight 990, American Airlines Flight 587, American Airlines Flights 11 and 77 in the 9/11 Litigation Case, and Colgan Flight 3407.
Mike graduated from Rutgers College in 1994 and Fordham Law School in 1998. He had a one-year judicial clerkship with a New Jersey Appellate Division Judge. After graduating law school he worked at a small commercial litigation firm in New York City for a year and a half before starting at C&F in 2001.
We welcome Mike to the Willis team!
wIllIS Re FIRST vIew July 2012Willis has released the July 1 Willis Re first View 2012 report, which covers the changes in rating level and conditions experienced by Willis Re brokers and product experts at the June 1 and July 1 renewals.
The key findings of the report are: – The overall reinsurance market remains stable and
orderly, with little sign of hardening despite some headline figures
– Another profitable quarter has lead to rate increases in the North American and International reinsurance markets, being driven by programme specific issues rather than an overall hardening market
– The impact of changes to vendor catastrophe models is becoming increasingly muted as the industry becomes more sophisticated, and models are being blended to show realistic possible outcomes
– A marked increase in the flow of capital into non-traditional vehicles, with investors attracted to the non-correlated returns available in reinsurance risk, has added new capacity
– The growing sophistication of the catastrophe bond and Insurance-Linked Securities (ILS) sector, means they will increasingly compete with traditional reinsurance to cover risk
– The political risks market continues to be impacted by the credit crunch and resultant global recession, with the ever changing Euro zone crisis of concern to both clients and reinsurers
CHaRTIS RebRaND aNNouNCemeNTChartis is going to rebrand to AIG this autumn. Chartis state they are in a strong position from which to grow their business and deliver better value for their customers and broker partners. Chartis have worked hard over the past two years to take corrective action on their underwriting portfolio and control their expenses. This means they have established a sound platform from which to create new impetus. This is underlined by the recent launch of the ‘We’re stronger together’ campaign to clearly promote their risk appetite. Rebranding to AIG is a positive step that helps Chartis to convey their strengths more effectively.
lIbeRTy avIaTIoN uNDeRwRITING – HeaD aNNouNCeDLiberty Aviation have announced that they will be hiring Bill Halligan to lead their underwriting team. Bill is currently with the Pritchard Syndicate and will be joining the team once he has served out his notice. Liberty have also announced that Anthony Prokopiou will also be joining the team at the beginning of September.
Airline Insight June & July 2012 3
lOsses OverviewThe loss experience for 2012 remains exemplary with just US$141 million of hull losses and no major liability losses reported. Attritionals are now estimated to be US$261 million and as a result are increasingly significant in relation to the much smaller overall total.
This excellent performance means it is now three years since the last major catastrophe. The Air France loss in June 2009 provided only a short blip in the downward trend of the market. It is therefore likely that it will take a number of major losses to have any impact on market direction.
Cumulative monthly inCurred reserve development (us$ million)
Current 2012 Reserve US$402 million (incl. pro rata attritionals)
JAN – JULY JAN – JULYJAN – JULYJAN – JULYJAN – JULY
$0
$500
$1,000
$1,500
$2,000
$2,5002008 2009 2010 2011 2012
$859m
$1,976m
$1,225m
$833m
$402m
Avge $1,968m
World Wide airline hull and liability premium and Claims on a Calendar year basis 2007 – 2012 (net leaders terms us$ million)
$0
$500
$1,000
$1,500
$2,000
$2,500
0%
20%
40%
60%
80%
100%
120%
140%
160%
Net Premium* $1,542 $1,680 $2,000 $2,065 $1,913
Claims** $1,919 $1,439 $2,439 $2,075 $1,125
Loss Ratio 124.5% 85.7% 121.3% 100.5% 58.8%
Est. Att. Losses $425 $425 $450 $450 $450
$427
$402
94.1%
$450
2007 2008 2009 2010 2011 2012
Hull and Spares
Hull and Spares
Liability
Liability
Attritional
Attritional
Hull and Spares
Liability
Attritional
Hull and Spares
Liability
Liability
Hull and Spares
Attritional
Attritional
* Premium includes all known airlines with an AFV in excess of US$100 million and is based on Net London Lead Terms; it is subject to change as more information becomes available.
** Claims shown include the estimated figure for attritional losses. Claims are updated as more information becomes available.
Airline Insight June & July 2012 4
Significant losses that have occurred since our last publication are outlined below.
On July 14, an Arik Air B737, registration 5N-MJI , collided with a stationary C-130 Hercules military transport plane (NAF 917) resulting in damage to both aircraft whilst taxiing from its parking stand in front of the terminal at Yakubu Gowon Airport, Nigeria. The hull reserve for this loss has yet to be established.
On June 20, an All Nippon Airways B767, registration JA610A, sustained damage after it suffered a hard landing in strong winds at Narita International Airport, Tokyo, Japan. The hull reserve for this loss is US$17.9 million.
On June 18, a Sky Airline Chile B737, registration CC-CRQ, sustained damage after it was caught by a gust of wind during the final stages of the approach to La Florida Airport, La Serena, Chile and its right wing tip struck the runway. The hull reserve has yet to be established.
On June 12, a Wasaya Airways BAE Systems 748, registration C-FTTW, was destroyed by a fire which broke out during the unloading of its cargo of fuel on the ramp at Sandy Lake, Ontario. The hull reserve for this loss is US$1.5 million.
On June 10, a LIAT Dash 8, registration V2-LGH, was destroyed in a hanger fire at V C Bird International Airport, Antigua and Barbuda. The hull reserve for this loss is US$5.3 million.
On June 9, a CSA Czech Airlines ATR42, registration OK-KFM, was destroyed in a hanger fire at Ruzyne Airport, Prague. The hull reserve for this loss is US$8.8 million.
On June 6, an Egyptair A320, registration SU-GBG, suffered damage when the aircraft veered off the runway when landing at Nairobi – Jomo Kenyatta International Airport, Kenya. The hull reserve for this loss has yet to be established.
On June 3, a Dana Air MD-83, registration 5N-RAM was destroyed when it crashed into a residential area of Lagos, Nigeria. The aircraft was reported to have lost power in both engines. There were no survivors on board. 147 passenger and six crew members were killed. The total number of ground fatalities still to be announced. The hull reserve for this loss is US$4.5 million.
On June 2, an Allied Air Cargo B727, registration 5N-BJN, was destroyed when it overran on landing at Kotoka Airport. The aircraft failed to stop on landing and it crossed the fence into a public road and collided into a small bus killing all 10 occupants inside. The aircraft also hit and killed a person in a taxi and a soldier on his bicycle. The four crew members were taken to hospital with various injuries. The hull reserve for this loss is US$1.5 million.
On June 1, a Sriwijaya Air B737, registration PK-CJV, sustained damage when the aircraft skidded off the runway on landing at Supadio Airport, Indonesia during a thunderstorm. Substantial damage was received to its entire gear, underbelly and engines when it dug into soft ground after coming off the runway. The hull reserve for this loss has yet to be established.
On May 30, an American Eagle ERJ-140, registration N834AE, sustained damage after landing at Chicago O’Hare Airport, USA. While taxiing to a gate, the aircraft was hit by the wing of a Eva Air B747. The hull reserve for this loss has yet to be established.
On May 30, an Eva Air B747, registration B-16481, sustained damage when its wing hit a American Eagle ERJ-140 while at Chicago O’Hare airport, USA. The hull reserve for this loss has yet to be established.
On May 26, a Flybe Dash 8 aircraft, registration G-JECH, suffered damage when the aircraft was struck by a ground vehicle at Ronaldsway Airport, UK. The hull reserve for this loss is US$1.1 million.
On May 23, an Air Berlin B737, registration D-ABKU, suffered damage when a ground service vehicle collided with the aircraft while it was parked at Düsseldorf Airport, Germany. The hull reserve for this loss has yet to be established.
On May 10, a British Airways A320 aircraft, registration G-EUYL, sustained damage after it was hit by a towed object. The hull reserve for this loss has yet to be established.
On May 6, an Egyptair A321 aircraft, registration SU-GBU, sustained damage during take off when the aircraft experienced tailstrike at Aleppo Airport, Syria. The hull reserve for this loss has yet to be established.
On May 6, a Niki A321 aircraft, registration OE-LET, sustained damage after a jetway struck the aircraft at the start of disembarkation on landing at Vienna International Airport, Austria. The hull reserve for this loss has yet to be established.
On May 5, a Sichuan Airlines A319 aircraft, registration B-6054, sustained damage after it experienced birdstrike on approach to Wuhan Airport, China. The hull reserve for this loss has yet to be established.
On May 4, a Vietnam A330, registration VN-A379, suffered damage to its nose undercarriage when an attempt was made to push back the aircraft while the parking brake was still engaged. The hull reserve for this loss is US$1.75 million.
industry newsIaTa uRGeS ICao SoluTIoN oN eCoNomICmeaSuReS FoR ClImaTe CHaNGe Beijing – The International Air Transport Association (IATA) reiterated its call for a comprehensive global solution on aviation emissions to be negotiated through the International Civil Aviation Organization (ICAO).
“To meet our ambitious targets we will need a globally-agreed approach covering the areas of technology, operations, and infrastructure as well as positive market-based- measures. Everyone—including Europe—agrees that the solution must
be a global agreement through ICAO at the 2013 Assembly. But Europe’s unilateral and extra-territorial inclusion of international aviation in its emissions trading scheme from 2012 is creating discord when we need harmony,” said Tony Tyler, IATA’s Director General and CEO.
Tyler’s remarks were made in his keynote State of the Industry address at the start of the 68th IATA Annual General Meeting and World Air Transport Summit in Beijing, China.
Airline Insight June & July 2012 5
The global air transport industry is committed to three sequential goals to manage its 2% share of global manmade carbon emissions. These are: – To improve fuel efficiency 1.5% annually to 2020 – To cap net emissions from 2020 with carbon-neutral growth– To cut net emissions in half by 2050 compared with
2005 levels
To achieve these ambitious goals the industry is pursuing a four-pillar strategy based on more technology investments, efficient infrastructure, better operations, and globally agreed positive market measures, ideally a single, global mechanism to offset some emissions.
“To meet our ambitious targets we will, at least initially, also need globally-coordinated, positive market-based measures. The extra-territorial EU Emissions Trading Scheme (EU ETS) is not a stepping stone on the way. It’s a polarizing obstacle that is preventing real progress. Our host country, China, is at the forefront of the opposition to the European ETS. Its carriers are forbidden from participating,” said Tyler.
“Sustainability should unite the world with common purpose, not divide it with affronts to sovereignty that risk a trade war, a war that nobody wants and from which no winner can emerge. Certainly no airline—European or otherwise—should be a target for retaliation because European governments are acting extra-territorially,” said Tyler.
“There is, however, common ground. Everyone—including Europe—agrees that the only real solution is a global agreement through ICAO at its 2013 Assembly. Such an agreement, however, is impossible under current conditions.
Europe seems more committed to implementing its ETS unilaterally than to sincerely negotiating a multilateral agreement. For Europe’s international counterparts it’s like being asked to negotiate with a gun to their head. Nobody can deny Europe the credit for moving sustainability up the global agenda. States are focused on the issue as never before. The onus is now on Europe to seize the moment, take a credible action to defuse the situation, and get on with finding the global solution that everybody is hoping for,” said Tyler.
ICAO is currently working on four options for a single, global market-based measure for international aviation. These are:– A global mandatory offsetting scheme – A global mandatory offsetting scheme with additional
revenue-raising – A global emissions trading scheme – A global ‘Baseline and Credit’ scheme based on efficiency
These options are being developed for review by the Council of ICAO with a view to agreeing to one of the options at the next ICAO Assembly of member states in the autumn of 2013.
“We are very encouraged by the recent progress at ICAO,” said Tyler. “For the first time there will be concrete proposals on the table for states to consider. It is vital that agreement is reached at the next ICAO Assembly so that industry and government can proceed together to tackle the challenges of climate change and achieve the ambitious goals that we have set.”
Source: IATA, June 11, 2012
FOrthcOMing renewAlsThe summer months are very quiet in terms of major airline renewal activity. There are just 10 renewals in August and a further 10 in September. Combined these months generate just 4% of the annual premium total.
It is therefore inevitable that eyes turn toward the final quarter renewal season. The traditional start of the renewal season is October 1 but recent years have seen the importance of October diminish as renewals have moved later and later in the year. We are therefore still some way from the vast majority of renewals and premium volume.
The recent level of stability in the market is unprecedented in comparison with the historical cyclical nature of the aviation sector and therefore without a change in market capacity levels or a run of major losses we look set for a continued reduction in premium volumes until the end of the year. The level of increase in anticipated exposures is yet to be seen and therefore there is uncertainty around how far this will go in halting the downward slide in premium levels.
10 yeaR exPoSuRe aND PRemIum DeveloPmeNT
$300
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
$350
$400
$450
$500
$550
$600
$650
$700
$750
$800 3,500
3,000
2,500
2,000
1,500
1,000
AFV
Billi
ons
Net Premium
and Passenger Development (M
illions)
AFV Passengers Net Premium
Airline Insight June & July 2012 6
July ReNewalSaIRlINe ReNewal DaTe exPIRING aFv uS$
American Airlines 01-Jul-12 18,061,024,613Federal Express 01-Jul-12 15,324,750,000Republic Airways 01-Jul-12 7,059,500,000Pinnacle Airlines & Colgan Air 01-Jul-12 4,737,746,865Ethiopian Airlines 01-Jul-12 2,605,753,842Volga Dnepr 01-Jul-12 2,146,251,300Spirit Airlines/Charter One 01-Jul-12 1,535,999,000Wizz Air 01-Jul-12 1,262,025,838Tiger Airways Private Limited 01-Jul-12 1,161,388,428Vuela (Volaris) 01-Jul-12 1,110,883,629Onur Air 01-Jul-12 1,034,165,000Middle East Airlines 01-Jul-12 806,219,000Azerbaijan Airlines 01-Jul-12 761,945,765Mid East Jet 01-Jul-12 579,000,000Aigle Azur 01-Jul-12 410,806,024Syrian Arab 01-Jul-12 295,247,726Air Mediterranee 01-Jul-12 293,742,490Merpati Nusantara 01-Jul-12 280,240,518Silk Way Airlines 01-Jul-12 272,095,342Avianova (Russia) 01-Jul-12 190,662,999Fedex Cessna 208 Program 01-Jul-12 189,104,720Arkia 01-Jul-12 188,700,000AeroContractors Company of Nigeria 01-Jul-12 167,605,206Sky Service S.A. 01-Jul-12 137,381,644Israir Airlines 01-Jul-12 123,543,478Lao Aviation 01-Jul-12 120,000,000Aeroflot 02-Jul-12 6,808,985,162Cargoitalia 05-Jul-12 121,000,000Kingfisher Airlines 07-Jul-12 2,920,400,758Srilankan Airlines 11-Jul-12 941,728,215TNT Holdings 15-Jul-12 1,408,420,849Pluna 15-Jul-12 318,250,000Deccan Express Logistics 18-Jul-12 103,666,900IndiGo 28-Jul-12 2,200,446,223TAME 30-Jul-12 241,910,000Aeromar Airlines 31-Jul-12 138,000,000
auGuST ReNewalSaIRlINe ReNewal DaTe exPIRING aFv uS$
Skymark Airlines 01-Aug-12 1,187,160,500Monarch Airlines 01-Aug-12 1,161,910,545Nigerian Eagle Airlines 01-Aug-12 265,866,439Satena 01-Aug-12 143,960,000Kelowna Flightcraft 01-Aug-12 102,543,280Kalitta 03-Aug-12 260,000,000Alaska Air Group 05-Aug-12 4,218,378,904Belavia 07-Aug-12 121,100,000Bangladesh Biman 15-Aug-12 380,886,561Pegasus Airlines 24-Aug-12 1,750,380,706I-Fly Aircompany 24-Aug-12 149,150,685VivaAerobus 28-Aug-12 195,378,081
This is the Willis Airline Insurance Insight, which is our vehicle to keep our clients and others informed of developments in the airline insurance market. We welcome any comments or suggestions you may have to improve this publication. All data and analysis within this newsletter includes all known information at the time of production and is based on the net lead terms of airline insurance programmes renewing with fleet values in excess of US$100 million. The analysis does not take into account any coverage changes and is not weighted in relation to the size of the programme’s exposure or volume of premium paid. Loss information includes western built equipment and our attritional loss threshold is below US$1 million. These figures are based on a like for like basis and exclude those risks that incepted in 2009/2010 and are no longer in operation and those risks that have commenced operations in 2010/2011 as these will distort the percentage change figure.
This newsletter offers a general overview of its subject matter. It does not necessarily address every aspect of its subject or every product available in the market. It is not intended to be, and should not be, used to replace specific advice relating to individual situations and we do not offer, and this should not be seen as, legal, accounting or tax advice. If you intend to take any action or make any decision on the basis of the content of this publication you should first seek specific advice from an appropriate professional. Some of the information in this publication may be compiled from third party sources we consider to be reliable, however we do not guarantee and are not responsible for the accuracy of such. The views expressed are not necessarily those of the Willis Group. Copyright Willis Limited 2012. All rights reserved.
Willis Limited, Registered number: 181116 England and Wales. Registered address: 51 Lime Street, London, EC3M 7DQ. Tel +44 (0)20 3124 6000. www.willis.com A Lloyd’s Broker, Authorised and regulated by the Financial Services Authority for its general insurance mediation activities only.
CoNTaCT DeTaIlS
11069/08/12
Steve Doyle Tel: +44 (0)20 3124 7208 Email: [email protected]
Kelly CrudgingtonTel: +44 (0)20 3124 7377Email: [email protected]
Holly ConnellTel: +44 (0)20 3124 8521Email: [email protected]
Jason motaTel: +44 (0)20 3124 6945Email: [email protected]
