Aerospace premiums dropped 5% in 2013: Aon

Aon Risk Solutions recently reported the lead premium in the aviation sector declined by 5% in 2013, to US$653.4 million, after a “protracted period with relatively few claims.”

Aon Corp.’s risk solutions division reported, in its Aerospace Insurance Market Outlook 2014, that insurance prices in the aerospace sector “have continued their almost decade long decline.”

When converted to U.S. currency, the lead premium was $699.43 million in 2012, dropping by 7% to $653.4 million in 2013. When measured by reporting currency, the lead premium drop was 5%.

The report, released May 15, “is representative of market trends only,” Aon stated. “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.”

Aon Risk Solutions reported lead premium trends in three categories: manufacturers, airports and service providers. Manufacturing comprises 80% of the sector.

“The premium movement year on year remained flat on average for 2013/14 insurance programmes compared to 2012/13,” Aon stated of aerospace manufacturers. “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.”

About 4% of total aerospace premiums are in the service provider sector, which saw premiums drop 16%.

“Only three of the 45 service provider programmes placed for 2013/14 in the global insurance markets incurred premium increases” Aon Risk Solutions reported. “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.”

In the airport sector, lead premium is now $80 million a year, down from $130 million a year in 2006. Aon attributed that drop to two 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,” Aon stated in the report. “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.”

Aon reported that in 2013, there were 35 incidents resulting in aerospace claims, while the annual average, from 1995 through 2012, was 69. Total claims in 2013 were $903 million, with one-third of that from a single incident with three fatalities, Aon noted.

Aon did not specifically state which incident it was referring to, but on July 6, 2013, a Boeing 777 flown by Asiana Airlines crashed upon landing at San Francisco International Airport. Three passengers died. The airplane struck a seawall at the end of the runway and was destroyed by the impact and a post-crash fire, the United States National Transportation Safety Board reported. NTSB is scheduled to meet June 24 to determine the probably cause of that incident.

2013 was the first year “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,” Aon noted in its aerospace market outlook.

“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.”