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Willis: Aviation Industry Returns to Better Times

Posted on 30 Apr 2012

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The airline and aviation manufacturing insurance markets turned a profit in 2011 following one of the safest years in recent times in terms of numbers of losses and passenger fatalities, according to Willis Aerospace, a unit of Willis Group Holdings, the global insurance broker. However, conditions were more favourable for airline insurance buyers in 2011 with premium levels down 2.4%, compared with 1.3% for the aviation manufacturing insurance.

The latest annual Willis Aerospace - Aviation Products Market Review reveals total airline insurance premium in 2011 was USD1.9bn, against claims of USD1.1bn, giving rise to the first profitable year for the airline insurance sector in five years. Total reported 2011 premiums for aviation manufacturing insurance were USD657.9m.

An analysis of insurance renewals across all aerospace sectors found a rate reduction of 1.8% compared with 2010.

This follows one of the safest years for the aviation industry in recent times. There were 30 total losses of western built aircraft in airline service in 2011, down from 46 in 2010 and the lowest number recorded. Passenger numbers increased 5% from 2010, yet overall passenger fatalities continued a steady ten year decline. There were 184 passenger fatalities last year, compared with 648 in 2010. The five-year average fatality rate per million passengers decreased to below 0.2.

The improvement in the industry’s safety record is attributed to the use of advanced safety avionics, plus improved pilot training standards.
Chairman of Willis Aerospace, Mark Wilford said:

“The aviation industry is returning to good health. New technologies continue to deliver improved long-term safety records and fleet/passenger numbers are growing.

“However, Buyers recently confirmed to us that aviation insurers should be reminded it is the aerospace/manufacturers sector that, by and large, has historically subsidized the overall aviation insurance market through more difficult times across other sectors. ”

A total of 4,222 western built aircraft* were delivered in 2011, up 2.48% from 2010. Airline passenger jet deliveries increased 6% from the previous year to 1,104 units in 2011. Total projected sales also increased slightly to USD 440.9bn in 2011.

Asia led the revitalisation of the aviation industry in 2011 with the strongest passenger growth and highest number of new aircraft deliveries. Meanwhile, aircraft deliveries to North American operators in 2011 were less than half the number delivered before the economic downturn in 2008.

This year’s Review questions whether insurers are giving buyers of aviation products policies adequate rate reductions given the growing use of Self Insured Retentions, which have been generating cleaner claims records for aviation manufacturers’ policies and therefore better risk profiles for insurers.

The Review also reports that a January 2012 survey of Aerospace insurance buyers suggested insurers should be reminded that the aviation manufacturing sector has historically subsidized the overall aviation insurance market.