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Aon: Airline Industry Begins to See Recovery

Source: Aon

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Posted on 04 Apr 2011

The airline industry has started to recover since the darkest days of the financial crisis, with rising passenger numbers and fleet investments resulting in insurance premium rising by four percent on average during 2010, according to Aon Risk Solutions, the global risk management business of Aon Corporation. The findings are detailed in Aon’s annual report the airline industry, the Aon Airline Insurance Market Outlook, 2011.

One of the key factors, other than the values of aircraft fleet, in determining the cost of an airline’s insurance premium is the number of passengers they expect to carry. After an overall decline in passenger numbers forecast for 2009/10 renewals, 2010/11 placements showed a recovery in every region of the world, with airlines in Asia Pacific predicting the largest increase, 12%.

During their insurance renewals, regional airlines predicted the largest increase in passenger numbers, 28%, followed by international airlines (14%), low-cost (10%), flag (7%) and charter (7%).

Insurers paid out more in claims in 2010 than they took in premiums, although the high level of airline insurance market capacity meant that there was enough competition to suppress their premium income aspirations to only 4% where premium was rising at least 20% in 2009.

Losses in 2010 were very high, with insurers seeing approximately US$2.1 billion of claims, compared to an average of US$1.5 billion between 1998 and 2009, but down on the US$2.3 billion of claims in 2009. It appears as though the loss profile of the industry is evolving, given that the last two years have seen a very high level of claims, but the actual number of incidents well below the long term average. There were 601 fatalities in 2010 compared to a long term average of 621.

Simon Knechtli, Aon’s head of aviation in the UK commented: “The bottom line is that the only reason for the small rise in market premium is the airline industry’s rebounding risk exposures, including fleet value and developing number of passengers. As risk exposures have risen by more than overall premium this evidences that the underlying cost of insurance continues to fall. That said, it is very difficult to sum up the position of the airline insurance market in a simple statement because the conditions are exceptionally complicated with market players deploying a variety of tactics to try to achieve their desired portfolio performance.”


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