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Market Update
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U.S. - Aviation
Printable Version
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Political and economic fallout from the 2009 financial crisis coupled with traditional supply and demand factors are keeping
downward pressure on general aviation hull and liability rates. The fallout in public perception of corporate executives using
company aircraft for business and personal travel continues to resound throughout the business community. More Fortune 500 companies
are parking their aircraft or putting the aircraft assets on the market for sale. The inventory of used private aircraft has increased
by as much as 40 percent for some classes of aircraft. Additionally, the major U.S. commercial carriers have reduced system-wide capacity,
parked older, less-efficient aircraft, and are delaying new aircraft deliveries. These factors, along with the worst economic recession
since the Great Depression, will likely result in continued downward pricing trends for at least the next couple of years.
While the inventory of active aircraft has continued to contract, the supply of aviation insurance and reinsurance has not. On the
contrary, the newest entrants into the hull and liability market space continue to compete for business that the legacy markets (USAIG,
Chartis [formerly AIU/AIG] and Global Aerospace) have traditionally written. We continue to see improvements in the policy forms which
separated the legacy carriers from the newest entrants (Allianz, Arch, and Travelers). With policy forms providing broad-form language and all the
“bells and whistles,” the choice is often based on relationships and pricing. Because of the general state of the economy, we are seeing some
client/market relationships dissolve after having been in place for more than 20 years because of financial pressures on the bottom line.
Offshore and EMS (emergency medical services) helicopter service industries is one sub-segment of the general aviation community that has already
hit the floor regarding pricing, and it is beginning to see some price increases. Most types of helicopter operations involve flying in a
low-altitude envelope with other low-flying aircraft as well as natural and manmade obstructions. Offshore and EMS helicopter service companies
are insured through quota share programs as the way to spread the risk for the high-frequency/high-severity losses associated with this community.
Self-insured retentions or high deductibles have required operators to put “some skin in the game” in regards to safe operations. From a loss-control
perspective, operators have embraced NVGs (night vision goggles) to enhance situational awareness of the flight crew members improving the safety margin
of flight operations. The number and severity of accidents have made this class of business the first to hit the bottom of the soft market and begin to harden.
This year the worldwide airline segment has experienced the worst underwriting losses on record outside of 9/11. Three major accidents, including the June 1, 2009,
Air France A330; June 30, 2009, Yemenia Air Bus A310; and February 12, 2009, Continental Connection (operated by Colgan Air, Inc.)
Bombardier Dash8-400. The hull and liability reserves for these losses are above $1.3 billion combined. Most of the large U.S. carriers renew in the
fourth quarter, but the trend to date has been upwards close to 20 percent premium increase. We expect this trend to continue through 2010.
We expect to see the general aviation market and airline market experience modest premium reduction ranging from 5 percent to
20 percent as the active number of aircraft decreases over the next 12 to 18 months. The offshore and EMS helicopter operators should expect to see flat
to modest increases over the next 12 to 18 months. The airline segment should expect to see increases as high as 20 percent over the next 12 months.
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Please contact your Lockton Representative for further information regarding any information contained in this
market update.
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Chris Sullivan
Vice President
Account Executive
Houston, TX
Tel: 713.458.5332
E-mail: csullivan@lockton.com |
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