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Aerospace Insurance Market report | 2014Serene, tranquil, calm

Contents.

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

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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


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).


3

Highlights:

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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


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.

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6


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


7


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

[email protected].

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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


9


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


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10


11


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.

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12

Analysis.

13


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


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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)


Percentage premium change by sector 2012–2013 percentage change (US$ and reporting currency)



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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)


17


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.

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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


19


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)


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20


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


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.

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22


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)


23


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


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


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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.

25


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)


Premium and renewals by region (proportion of renewals)



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26


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)


27


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


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)


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28


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)


29


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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30


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.


31


-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


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)


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32


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


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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Published by Aon Limited.

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