Airlines see premium rate reduction over drop in losses

 Aon, the lead broker to Nigeria’s Dana Air that crashed in 2012 has reported that the aviation industry experienced one of the lowest levels of losses to date in 2012, helping most airlines achieve premium rate reductions for the current year.

The sector continues to defy expectations, says Aon, with claims and premiums for airline insurance in 2012 lower than in 2011.

According to Aon’s Airline Insurance Market Outlook 2013, hull and liability premiums were $1.61bn in 2012, down from $1.81b in 2011. The decrease was despite a 7 percent increase in underlying exposure, the broker said.

Major losses in 2012 totalled just $324m compared with $522m in 2011, a 40 percent reduction. Including minor losses, the overall estimated incurred claims total was $924 million, down 20 percent on 2011 and at the lowest level since 1986.

Major losses were ‘exceptionally’ low and were around 70 percent below the long-term average for the industry. There were just 39 incidents last year compared to an average of 70, while total insurable fatalities were 318, compared to a long-term average of 597.

Indicators all point to another year of advantageous insurance pricing for airlines in 2013, Aon says in the report. Capacity continues to rise and there is no shortage of appetite for aviation risk, particularly for airline business, it says.

Many insurers increased their appetite for aviation risk and their willingness to discount premiums. As a result pricing slipped further in 2012 as total demand outstripped the finite supply and rates reduced for the majority of airlines, Aon said.

A single major loss would prompt a price reaction from insurers, but with all the capacity chasing airlines, it will be very short-lived, if even noteworthy, the broker said.