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The Airport Casualty Market Overview
Citation preview
Prepared by Aon Risk Solutions Specialty | Aviation
The Airport Casualty Market Overview
January 2012
ACI-NA Annual Risk Management Conference
New Orleans
John C. Geisen
Senior VP – Aon Aviation
Aon Risk Solution | Specialty | Aviation
Contents
The Aviation Insurance Market
– The Aerospace Market
• The Airports Market
Airports Market Capacity
2012 Expectations
– Pricing
– Limit setting
– Other Cost Containment
Aon Risk Solution | Specialty | Aviation
The Aviation Insurance Market
The Aviation Market – What is it?
The market is comprised of insurance companies prepared to
underwrite/cover ‘fortuitous’ business risks in the aviation industry
It is a true financial market
– the commodity that is traded is insurance capacity to underwrite risk
The insurance market is international and it is accessed by brokers
worldwide
The risks are:
– airline
– helicopter
– general aviation
– corporate aircraft operators
– manufacturers, airport authorities, civil aviation authorities and aviation
service providers (aerospace)
Aon Risk Solution | Specialty | Aviation
Aon Risk Solution | Specialty | Aviation
Aviation Insurance Market Principal Customers
Principal customers
– Airlines
– General aviation operators
– Banks and finance houses
– Airport authorities
– Air traffic control authorities
– Ground handlers
– Aviation refuellers
– Manufacturers (prime and component suppliers)
– Repair/service/maintenance/facilities
– Space
Limits
– Today provides maximum insurance limits of up to :
• Hull $250,000,000
• Liability $2,250,000,000
Aerospace
Aon Risk Solution | Specialty | Aviation
Aviation Markets by Estimated Income
Estimated Premium Income US$5.7bn
Airline Subscription Market
48 ‘Active’ Underwriting Units
Hull, Liability and Spares
Excess Liability - ‘non-war’
Hull War Subscription Market
15 Underwriting Units General Aviation Subscription Market/100%/Treaty
24 ‘Active’ Underwriting Units Hull,
Liability, Spares and War
Corporate/Government/Commercial
Private/Agri/Emergency Operators
Fixed Wing/Helicopters
Hull Deductible 100% Market
5 Underwriting Units
Aerospace - Liability
Subscription/100%
30 Underwriting Units
Airport Authorities/ATC
Manufacturers
Repair and Service
Ground Handler/Refueller
Financiers
Space
Hull/Contingent Cover
Excess AVN52 Subscription Market/100%/ Approx. 20
‘Active’ Underwriting Units
Aon Risk Solution | Specialty | Aviation
The Aviation Insurance Market
As goes a significant segment of the market, so goes the market you
face
Aon Risk Solution | Specialty | Aviation
The Aerospace Market
Aon Risk Solution | Specialty | Aviation
The Aerospace Market
Aerospace risks are categorized as follows:
– Manufacturers
• Prime engine and airframe
• Maintenance repair and overhaul (MRO)
• Sub-component manufacturers
– Service Providers
• Refueller/defuellers/refiners
• Fixed base operators
• Caterers
• Security screening companies
• Freight forwarders
– Airport
• Airports and associated ground service providers
• Air traffic control & Aviation Authorities
Aon Risk Solution | Specialty | Aviation
Aerospace Overview
The cost of insurance in the aerospace market is continuing to drop
slightly
– Our analysis shows a slight decrease of -2% for 2011
– This compares with a -3% reduction in 2010 and -2% in 2009
– However, the different aerospace sectors are receiving their own differing
levels of treatment
Renewals are being looked at on an individual basis
– Changes in loss records, exposures, limits and self insured retentions are
still having the largest impact on premiums
Wider issues in the economy are leading to insurance capital providers
scrutinizing their investments closely
Aon Risk Solution | Specialty | Aviation
Aerospace Overview
Many underwriters are utilizing premium modelling systems to dictate
pricing
– Demand for greater risk information (e.g. technical and contractual)
There is still high market capacity allowing for differentials and
improved composite pricing on desirable business
– Available capacity is in excess of US$2,000,000,000
– Although there are only a limited number of recognized lead underwriters
for high indemnity limits or major prime manufacturers
Excessive US court awards and increases to historical loss reserves
continue to concern the market
Loss levels are volatile
– The aerospace market has been relatively loss free over the last five years
– However, the recent high loss levels in the airline and helicopter industries
could yet filter through to aerospace if 2011 is an anomaly
Aon Risk Solutions | Specialty | Aviation
World Airline Premium and Claims 2001-2011
0.0
1.0
2.0
3.0
4.0
5.0
6.0
01 02 03 04 05 06 07 08 09 10 11
US
$ B
illio
ns
Hull/Liability Premium
Claims
Average 10 Year Premium
Average 10 Year Claims
Average Premium
2001-2010 $2.24bn
Average Claims
2001-2010 $1.80bn
Aon Risk Solutions | Specialty | Aviation
Airline Impact on Total Market
2007 and 2008 had the second and third highest claims totals since 2001
respectively. In 2009, also one of the highest years for claims ever witnessed
in the airline insurance market, claims reached over US$2.34bn. The market
suffered an estimated US$2.1bn losses in 2010
2011 losses however are at an historic low
– The lowest levels seen since our monthly analysis began in 1996
– Around 50% of the average expected losses through 3 quarters of the year so far
(excluding minor losses)
Total lead hull and liability premium is set to be around US$1.9 billion for 2011
– Claims continue to be low, with the potential of a profitable year for underwriters after
four challenging ones
– Airlines with poor loss records are seeing increases, but the market is generally soft
– Capacity looks likely to continue to be healthy in 2012
Aon Risk Solutions | Specialty | Aviation
Airline Losses
Aon Risk Solutions | Specialty | Aviation
Quarterly Airline Premium Movements
2007-2011
-35%
-25%
-15%
-5%
5%
15%
25%
35%
45%
Q10
7
Q20
7
Q30
7
Q40
7
Q10
8
Q20
8
Q30
8
Q40
8
Q10
9
Q20
9
Q30
9
Q40
9
Q11
0
Q21
0
Q31
0
Q41
0
Q11
1
Q21
1
Q31
1
Q41
1
% M
ove
me
nt
Aon Risk Solution | Specialty | Aviation
Premium and Claims: Combined Aerospace (As declared for total 2010 renewals)
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
$550
$600
$650
2005 2006 2007 2008 2009
US
$ B
illio
ns
Premium Claims
Aon Risk Solution | Specialty | Aviation
* Figures To Date
Aerospace Annual Renewal Breakdown
0
5
10
15
20
25
30
35
40
45
50
55
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Nu
mb
er
of R
en
ew
als
2010 Renewals
2011 Renewals
Aon Risk Solution | Specialty | Aviation
* Figures To Date
Aerospace Annual Premium Breakdown
$0
$25
$50
$75
$100
$125
$150
$175
$200
$225
$250
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
US
$ M
illio
ns
2010 Premiums
2011 Premiums
Aon Risk Solution | Specialty | Aviation
Worldwide Aerospace Liability Premium Income
Manufacturers US$ 584,350,000
Repair and Overhaul US$ 37,600,000
Airport US$ 79,500,000
Air traffic control US$ 29,500,000
Refuellers/Others US$ 45,300,000
Total 2010 Premium Income US$ 776,250,000
Once 2011 settles, we expect Aerospace Premium to be circa US$760 million
Representing 13.7% of the Global Aviation Income
Aon Risk Solution | Specialty | Aviation
Key Insurance Market Issues
Current attitude towards major aerospace renewals
– The high level of airline hull losses could affect the aerospace market
– The effect on the market of a major loss
Drivers for Capital Providers
– Capital providers believe that the aviation insurance class offers low
frequency/high severity losses from a narrow band of premium
income/portfolio
– Every US$ of aviation income needs an equal backing of capital plus a
strong margin of return (+20%)
– Alternative classes may provide safer havens and better margins of return
– Return on capital adequate? Stay-in? On what basis? Transfer capital to
lower risk and more profitable sectors?
– Or, continued attractiveness of diversifying risk portfolio
• Less or Uncorrelated to other cat loss
Aon Risk Solution | Specialty | Aviation
Premium Movements 2011: Aerospace
The figures shown in the table below (including expiring figures) represent those of policies that have
renewed in 2011, where we have two years of information and fall within our aerospace selection criteria only.
Month No of Renewals2010 Premium
(US$m)
2011 Premium
(US$m)
2011
Premium
Movement
(US$)
2011 Premium
Movement
(Original
Currency)
1Q 56 $79.30 $74.26 -6% -3%
2Q 65 $148.74 $150.08 1% 0%
3Q 70 $286.03 $276.08 -3% -2%
October 16 $102.40 $100.88 -1% -1%
November 11 $25.91 $26.29 1% 1%
4Q 27 $128.31 $127.17 -1% 0%
ANNUAL
AVERAGE/TOTAL218 $642.38 $627.59 -2% -2%
Aon Risk Solution | Specialty | Aviation
Premium Movements 2011: By Sector
The figures shown in the table below (including expiring figures) represent those of policies that have
renewed in 2011, where we have two years of information and fall within our aerospace selection criteria only.
Month No of Renewals2010 Premium
(US$m)
2011 Premium
(US$m)
2011
Premium
Movement
(US$)
2011 Premium
Movement
(Original
Currency)
Airport 75 $97.97 $93.00 -5% -7%
Manufacturer 102 $512.02 $502.63 -2% 1%
Service Provider 41 $32.39 $31.95 -1% 3%
ANNUAL
AVERAGE/TOTAL218 $642.38 $627.59 -2% -2%
Aon Risk Solution | Specialty | Aviation
Airports and ATC
Aon Risk Solution | Specialty | Aviation
Airport and ATC Market Conditions
The Airport and ATC sectors ended 2011 much as they did the 3 years
before with premium reduction. We saw a -7% (-5% in US$) reduction
in 2011.
This continued softening is due in part to superior loss experience and
more so due to new capacity fighting for share
The largest airports for the most part have already seen their most
aggressive results, with the next level of airports seeing the most
aggressive pricing year to date 2011, especially for those who may
have sat out prior softening.
Some underwriters bemoan the fact that attritional losses are eating up
an unhealthy level of premium income with little set aside for
catastrophe loading, even though the results have remained profitable
– Less likelihood to absorb a bad hit without repercussions
Aon Risk Solution | Specialty | Aviation
Premium Movements 2011: Airports
The figures shown in the table below (including expiring figures) represent those of policies that have
renewed in 2011, where we have two years of information and fall within our aerospace selection criteria only.
Month No of Renewals
Estimated
Passenger
Movement
Estimated
Aircraft
Movement
2010 Premium
(US$m)
2011 Premium
(US$m)
2011 Premium
Movement
(US$)
2011 Premium
Movement
(Original
Currency)
1Q 25 5% 12% $43.42 $39.36 -9% -7%
2Q 22 14% 21% $26.43 $26.38 0% -1%
3Q 21 2% -1% $17.93 $17.61 -2% -14%
October 6 2% 3% $7.56 $7.16 -5% 2%
November 1 5% 1% $2.62 $2.50 -5% -5%
4Q 7 2% 3% $10.18 $9.66 -5% -2%
ANNUAL AVERAGE/
TOTAL75 8% 9% $97.97 $93.00 -5% -7%
Aon Risk Solution | Specialty | Aviation
Airport and ATC Market Conditions
Airports average quarterly percentage premium movement(original
reporting currency percentage change)
Aon Risk Solution | Specialty | Aviation
Airport and ATC Market Conditions
The airport sector has been consistently soft since 2007, driven by the
surplus capacity. This is being used to generate competition between
underwriters and deliver cost savings for desirable risks.
During the depths of the global economic downturn, the driver of airport
insurance price reductions was falling exposure.
The improved economic conditions during 2011 have meant that
estimated exposures appear to be on the rise again, but the
resurgence of significant economic concerns, particularly in Europe
and to a lesser extent North America, is likely to mean that forecasts
are less positive for 2012/13 placements.
– Our analysis so far this year for aircraft movements show a 3% increase
over the next year with greater growth outside of North America but a
“feeling” the economic malaise will subside. Interestingly in the ever busy 3
week 2011 holiday travel season in the US, passengers were estimated to
be off from 2010 by 1% so that “feeling” may not sustain
Aon Risk Solution | Specialty | Aviation
Airport Market Conditions
The 5% reduction in lead premium in the airport sector during 2011
continued a soft market trend that has been in place consistently since
the start of 2007. The 2011 market is the softest the market has been
since the soft market started, with the sector falling by 5%, 4%, 2%
and 7% in 2007-2010.
The five year soft market means that there are now many questioning
when the bottom of the market will be reached. While potential
capacity continues to be healthy for well presented risks, it seems
possible that 2011 could be the bottom
Prices in the sector might start to rise if passenger numbers recover
but all evidence suggests a flat 2012.
Ultimately, the position is very challenging for underwriters at the
moment. On the one hand the market has been soft for a very long
time, but at the same time capacity remains ample enough to hold
increases in check
Aon Risk Solution | Specialty | Aviation
Market Capacity
US Airports/Service Providers with a US$1 Billion Limit Quota Share Structure : 264% of Need
Aon Risk Solution | Specialty | Aviation
ACE Global London Synd. 2488 15.00%
Allianz Group 10.00%
Alterra (Max Re.) 3.00%
Amlin Syndicate 2001 8.50%
Antares Syndicate 1274 3.50%
Aviabel 0.50%
Axa Corportate Solutions 10.00%
Berkley Aviation 5.00%
Catlin Syndicate 2003 20.00%
Chartis 30.00%
Chaucer Syndicate 1084 5.00%
Faraday Syndicate 435 7.50%
Global Aerospace 20.00%
Hiscox Syndicate 9475 5.00%
Inter Hannover 5.00%
Kiln Aviation Synd. 510 5.00%
LaReunionAerienne 8.00%
Mitsui 3210 12.00%
Munich Re. 10.00%
Partner Re. 3.50%
QBE Syndicate 5555 10.00%
SCOR 2.00%
Sirius 1.50%
Starr Aviation 10.00%
Swiss Re 15.00%
Talbot Syndicate 1183 7.50%
Tokio Marine and Nichido Fire Ins. 1.00%
Torus 3.00%
Travelers Syndicate 5000 5.00%
USAIG 15.00%
XL Specialty 7.50%
It should be noted that underwriters are unlikely to participate up to their maximum capacity.. The actual available
capacity is dependant on a number of variables and underwriters’ desire to participate on any particular risk
US Airports/Service Providers Capacity Single Market Structure
Market Commentary
ACE
US domestic leader/largest market share
of airports in the US and the only market
able to provide $750M in limits. $100M
primary with dedicated London slip
above
Chartis Aerospace Very aggressive US market, just behind
Ace in share, able to provide $300M in
house with admitted security. Will either
lead or follow in a vertical placement.
Global Aerospace Underwriting
Managers (GAUM)
US domestic security up to $300M
capacity on a first layer of a horizontal
layered program. Also available to follow
selected leaders only.
Starr Aviation
Capacity to $300M on under 5M
enplanements and GA airports on
admitted paper – surplus capacity of
250M on over 5M enplamentment
airports
Phoenix Aviation Managers Capacity of $200M on domestic Old
Republic security. Prefers to follow on of
the three leaders above.
Although participating on quota
shares and leaders, there are
also some players that will write
100% of an airport’s liability risk
in their own right or via a
dedicated primary/excess
mechanism
Estimated Market Share in US in
order of size for the top 5
Ace
Chartis
Global
Phoenix
Starr
Aon Risk Solution | Specialty | Aviation
Aon Risk Solution | Specialty | Aviation
2012 Expectations
Outlook for 2012
– Economic concerns continue to be reflected in airport exposure forecasts,
although the metrics appears to be improving. The airport sector is a
barometer for aviation activity as a whole. As a result, its direction in 2012
will provide a strong indicator of how the aviation industry will perform in the
longer term.
– In terms of the direction of the insurance market, in the absence of a major
incident, it is likely to continue to respond to exposure changes, with
airports that are growing seeing an increase in their lead premium, while
those that are not growing seeing the opposite. As economy of scale
mattters, “cost per” metrics work inversely to exposure, all else being equal
– The Reno air show loss may be just such a major incident with full limits
tendered by the sponsor and market rumors that the airport market could
be touched by a claim reserved at much more than US airport premium
– Increased Reinsurance expense and the ability to pass that cost along to
customers are two different realities
– Always perilous to discuss the bottom, but we are closer than in year’s past
so plan accordingly
Aon Risk Solution | Specialty | Aviation
Other Topics
Limit Analyses by Aircraft Type
– One activity we are seeing amongst airport risk managers is the linkage to
type of aircraft by airfield and limit demands or needs
• Expectation is in 2012 some will have greater scrutiny in this area and if the
market remains soft, will consider whether to enhance limits bought, if not
premium paid
• An EU example
Aon Risk Solution | Specialty | Aviation
Liability Limit versus Largest Aircraft Type
Largest Aircraft
Type Insured
Liability
Limit EUR(m)
A380 Insured Q € 1,500
A380 Insured M € 1,300
A380 Insured O € 1,300
A380 Insured L € 1,000
A380 Insured I € 800
A380 Insured G € 750
A380 Insured C € 600
A380 Insured B € 500
Largest Aircraft
Type Insured
Liability
Limit EUR(m)
B747/B777 Insured N € 1,300
B747/B777 Insured K € 1,000
B747/B777 Insured J € 950
B747/B777 Insured H € 800
B747/B777 Vienna Int'l € 750
Largest Aircraft
Type Insured
Liability
Limit EUR(m)
B777/A330 Insured E € 750
B777/A330 Insured A € 220
Largest Aircraft
Type Insured
Liability
Limit EUR(m)
B747/A340/A330 Insured D € 750
Largest Aircraft
Type Insured
Liability
Limit EUR(m)
B747/A340/A330 Insured P € 1,500
Largest Aircraft
Type Insured
Liability
Limit EUR(m)
A340/A320 Insured F € 750
Potential Loss Scenario
Aon Risk Solution | Specialty | Aviation
0
500
1,000
1,500
2,000
2,500
A300 A310 A320 A330 A340 A380 ATR 42 B747 B767 B777 MD-11
US
$ (
Mill
ions)
US$1.25m per passenger US$2m per passenger US$4.5m per passenger
Other Expectation Topics
Risk management in the Airport sector is focusing on the same things as their
peers in other sectors - as the market has softened, the opportunities for cost
containment will change
Due to different toolsets in the past and the fact market reductions may be
fleeting for some, we are seeing changing emphasis on retained cost of risk
and a resurgence in activity like TPA audit and performance assessment
methods
– e.g. LAMBDA
• Wholly objective means of measuring the effectiveness of defense counsel using actuarial
methodology, focused on metrics highly-correlated to cost or outcomes
• Defense counsel as a “cost-driver”
• Retrospective and Prospective modeling details “Leakage” and potential savings based upon
actual performance. Low cost & efficient solutions providing ROIs ranging from 30:1 to 134:1
Risk Maturity Index
– Launched with the Wharton School at Penn, on the premise there is a direct correlation between
risk maturity and financial performance
– Allows risk and finance leaders to assess their risk management framework and upon completion,
receive a risk maturity rating, suggestions for improvement and insights into their level of maturity
against all participants
Aon Risk Solution | Specialty | Aviation
Thank You
Aon Risk Solution | Specialty | Aviation
John C. Geisen,
Senior Vice President
Aviation National Practice Group
Aon Risk Solutions
5600 West 83rd Street,*
8200 Tower Suite 1100
Minneapolis, MN 55437
Mobile 612-839-9260
Office 952-807-0643*
Fax 312-381-0574
*new address and office phone
effective January 23