Aerospace Insurance Market report 2014

Transcription

1 Aon Risk Solutions Aerospace Insurance Market report 2014 Serene, tranquil, calm

2 Contents.

3 Market report 2014 Aerospace Insurance Market report 2014: Serene, tranquil, calm Foreword 2 Executive summary 3 Overview Overview Overview 5 Claims overview 8 Aviation reinsurance market 11 Analysis Quarterly/monthly analysis 13 Sector analysis 15 Regional analysis 25 Liability limit analysis 30 Inclusion criteria/notes 32 Analysis

4 Foreword Low-claims and strong underwriting competition have meant that insurance prices in the aerospace sector have continued to fall. The soft markets have been in place for eight years, with little sign of change on the horizon. The role of insurance in the aerospace sector continues to be central. Despite falling prices and rising exposure, an exceptional claims record overall and constantly improving technology, working practices and risk analysis, organisations need to ensure that they have a firm grip on the risks they face and understand where they are exposed. Aon s aviation experts work closely with colleagues across the business to ensure that our clients risk management and insurance programmes are comprehensive, cost effective and above all clear. We ensure that our clients benefit from the latest risk management techniques, explained clearly and with an understanding of the impact that they can have on a business. The need for positive engagement with the insurance markets continues unabated. Making sure that underwriters understand the challenges your organisation faces is likely to help them see your insurance programme in a positive light, and will put you in the position of being able to enjoy the best of the reductions that are currently available in the aerospace insurance markets. It s been nearly a decade of soft market conditions, and while there s little evidence of a change on the horizon, at some point prices will start to rise. Organisations with a good relationship with the markets are likely to feel the change last. If there are any aspects of this report that you would like to discuss in more detail, please do not hesitate to speak to one of our team. 2

5 Executive summary Aerospace Insurance Market report 2014 Market report 2014 Highlights: Overall aerospace lead premium fell by 5% in reporting currency Manufacturer lead premium was flat Airport lead premium fell by 7% Service provider lead premium fell by 16% Premium: Lead premium in the aerospace sector continued to fall, with the soft market conditions now lasting for nearly a decade. While there has continued to be talk of the market reaching its lowest point, there is little reason to expect a significant change for 2014/15 insurance prices (see page 5). Capacity: Despite the falling prices, capacity looks set to continue to be healthy for 2014/15 insurance programme negotiations unless there are a string of claims that look like they have the potential to be abrogated back to the aerospace operators. As a result of the robust level of capacity and competition, underwriters continue to offer enhanced wording on policies. Airport: Total global airport premium fell by 7%, the sixth consecutive year of decline. Average passenger numbers are due to increase by 3% for 2013/14 insurance programmes, reflecting increasing economic confidence globally (see page 16). Manufacturer: There was no change in the average cost of insurance premium for the manufacturing sector. Over a third of manufacturers saw an increase in the price of insurance, which correlated with turnover increases (see page 19). Service Provider: There is still little sign of the bottom of the market being reached in the service provider sector, where prices fell on average by 16%. The market has been exceptionally soft since 2007 (see page 22). 3

6 Aerospace Insurance Market Outlook 2012/13 The tranquil sector Overview. 4

7 Overview The aerospace industry is comprised of a number of different business types and models operating in different sectors. Comparing a vast global airframe manufacturer with a liability limit of more than US$2 billion with an airport service provider with a turnover of below US$50 million can make reporting on overall trends something of a challenge. Overview The bottom line however is that the risk challenges that companies in the aerospace sector face are similar and global. What happens in one sector is likely to have an impact on activity in another and the lessons learnt in one region will sooner or later change working practices elsewhere. Insurance programmes for 2013/14 continued to decline in price, the eighth year of the soft markets. Despite talk by some underwriters that the bottom of the market was visible, if anything renewal results appear to have been even more aggressive, particularly for non-manufacturers where limits are US$1 billion or lower. In this situation there are underwriters that can write 100% of the risk, which is driving fierce competition. This has been particularly notable in the service provider sector, where insurance prices fell by around 16% on average to the previous year. 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. Renewals are still being looked at on an individual basis however, and those with poor loss records will find market conditions very different to the underlying trend. 5

8 1, Premium (US$ million) Percentage change Aerospace premium movement Airline premium movement Aerospace Nett Premium Source: Aon Risk Solutions In line with recent years we are also seeing some renewals being retained in local markets rather than coming into London, which is affecting the amount of risks in our sample. Coupled with the falling price of aerospace insurance, year on year premium income has fallen significantly over the last decade. Some operations have also increased their retained limit, which has reduced the amount of premium that they pay as they move to ensure that their insurance programmes are as efficient as possible. Average annual percentage premium movement (original reporting currency percentage change) Source: Aon Risk Solutions Underwriting conditions have been exceptionally competitive and remarkably consistent over the last few years. Comparing the average lead premium change in the aerospace sector over the last eight years with lead premium change in the airline sector highlights the consistency of the aerospace insurance market. 6

9 Since 2006, average aerospace insurance prices have fallen by between 1% and 5% each year. While scrutiny on certain sectors and claims activity has meant that individual price changes have varied in comparison with the airline sector, where the average price change has fluctuated between -18% and +20%, the aerospace sector has been serene. At first glance this could appear to be somewhat academic, but from a financial planning point of view, it gives aerospace companies a relative degree of certainty that has been missing from the accounts of their airline cousins. Grounding liability limits rise The grounding of the 787 Dreamliner in 2013 raised the profile of grounding liability within the aerospace industry and highlighted the potential levels of exposure that can occur as a result. Coverage for grounding liability insurance has, for many years, been exclusively available to prime manufacturers and subject to a capped liability sub-limit of US$125 million in any one grounding and in the aggregate (or policy limit whichever is the smaller). In recent years however, the market has been able to offer an increased sub-limit for prime airframe and engine manufacturers of US$250 million in certain circumstances. One Lloyd s insurer has subsequently developed a standalone excess grounding product offering capacity of US$125 million any one occurrence and in the aggregate excess of a client s existing grounding limit. The Aircraft Builders Council soon followed and now offers clients a smooth limit of US$250 million any one occurrence and in the aggregate, for an additional premium. In light of the raised profile we are now seeing insurers offering the increased limit to their wider client base, subject to additional premium. If you would like to discuss these changes further, please contact your Aon client executive or aviation@aon.com. Overview 7

10 Claims overview From a claims point of view, for the second time in three years, there were fewer than 200 fatalities in the aviation industry insurable under standard hull and liability programmes. 100 Average, ,000 Including minor loss estimate Excluding minor loss estimate Average (Including minor loss estimate) Number of incidents Value of claims (US$ million) 2,000 1, Number of incidents, global Source: Aon Benfield According to Aon Risk Solutions data, 2013 had the lowest number of insurable fatalities in the aviation industry since 1995 when Aon Risk Solutions started examining this sample of data. It was only the second time since 1995 that the number of has been below Value of claims, global Source: Aon Benfield 300 (the first time was in 2011, with 2012 still well below the long-term average). The total number of incidents that resulted in claims was also exceptionally low, with only 35 recorded, compared to 69 on average between 1995 and

11 Number of fatalities, global This is the first time 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. The world is complicated, however. Despite the relatively low number of claims and the lowest number of incidents for the best part of two decades, the actual value of claims was relatively high. Around a third of the US$903 million total claims value came from a single incident, the ninth most expensive in aviation history, according to our records. It represented over a third of the claims total for the year. Despite the high value of the loss, only three fatalities were recorded in the incident. As discussed above, while this was an exceptionally expensive loss given the low number of fatalities, it is unlikely to have significant impact on the direction of the airline insurance market. Number of fatalities 1,500 1,250 1, Average, Number of fatalities, global Source: Aon Benfield Overview 9

12 10 Aerospace Insurance Market report 2014

13 Aviation reinsurance market Reinsurance pricing in the aviation sector fell once again at the start of 2014, with programmes exhibiting little or no claims activity during As a result of low loss activity, capacity remains plentiful in the aviation reinsurance market despite the incredibly low rating environment. While rates have fallen for a number of years, the low level of losses has meant that the sector has outperformed many other classes of business. Rates on average fell 7.5% for each sub-class at January 1, continuing the long-term trend. However, with exposures growing and rates at historical lows, should 2014 experience claims at the level of the expected losses then some underwriters could suffer negative returns on their aviation books. In previous upturns, market capacity was much less abundant and capacity withdrawals occurred to strengthen the resolve and influence of the remaining reinsurance underwriters. However, with the current over-capacity, it is difficult to see a sustainable upturn gaining momentum, unless losses are very significant. With original incomes falling, reinsurance buyers have looked to reduce programme cost using loss record as the main argument for reductions. Vertical limits and retentions remained largely stable in 2013 and are likely to remain so during 2014 unless there is a dramatic increase in loss frequency that drives pricing to prohibitive levels. Like the direct insurance market, some insurers have increased retentions or taken co-insurance in the primary area to meet budget expectations. Many reinsurers are talking about the end of rate reductions, but with some of the larger markets still looking to grow we expect rates to fall further in Aviation is a very transparent class and analytics are prominent in most underwriting decisions albeit with a heavy weight being given to loss record. Very few programmes now meet technical pricing expectations. Overview 11

14 Analysis. 12

15 Quarterly/monthly analysis Number of renewals 2012 Premium (US$) 2013 Premium (US$) % change (US$) % change (*RC) Jan % -5% Feb % -8% Mar % -11% Q % -7% Apr % -9% May % -15% Jun % +1% Q % -7% Jul % -1% Aug % -6% Sep % -8% Q % -3% Oct % -10% Nov % 0% Dec % -3% Q % -4% Total/Average % -5% Analysis * Reporting currency Source: Aon Risk Solutions 13

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17 Sector analysis The soft market conditions that have been in place for nearly a decade in the aerospace insurance market continued for 2013/14 insurance programmes, with little indication of a change in the short term. Renewals % change 2012 (US$m) 2013 (US$m) Premium % change (US$) % change (RC) Airport % $90.53 $ % -7% Manufacturer % $ $ % 0% Service Provider % $32.16 $ % -16% Total/Average % $ $ % -5% Source: Aon Risk Solutions Premium 4% 13% Manufacturer RC US$ -6% 0% Analysis Number of renewals 19% Total/average -5% -7% 36% Airport -7% -6% 45% 83% Service Provider -16% -16% Airport Manufacturer Service provider -20% -15% -10% -5% 0% 5% Premium and renewals by sector (proportion of US$ total) Source: Aon Risk Solutions Percentage premium change by sector percentage change (US$ and reporting currency) Source: Aon Risk Solutions 15

18 Airports (including air traffic control) Global The cost of insurance in the airport sector worldwide has been falling since around As a result of the decline, in 2006, total lead premium for the airport sector was around US$130 million per annum. It has now fallen to just over US$80 million. The falling price of insurance in the sector reflects two key 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. 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 The corner has definitely been turned, with average passenger numbers forecast to increase by around 3% worldwide during the course of 2013/14 insurance programmes. Percentage change Airports average quarterly percentage premium movement (original reporting currency percentage change) Source: Aon Risk Solutions The passenger forecasts by the airports compare to a 7% increase in passenger numbers made by airlines themselves. The airlines forecasts have traditionally been more bullish than those of the airports. For further details of how the aerospace and airline insurance markets compare, please contact the Aon aviation team or aviation@aon.com. 16

19 Americas Airports in the Americas forecast relatively modest increases in both the number of passengers they expect to carry and the number of aircraft they expect to host during the course of 2013/14 insurance policies. This ties in with relatively stable projections put in place by the airlines themselves, which forecast average passenger increases of 4% for North America for their 2013/14 insurance programmes. It should be pointed out that the airport data set for the Americas is relatively small because of the high number of renewals that are placed locally and as a result not included in this analysis. Asia Pacific Of the 19 airport operators in the Asia Pacific region that forecast passenger numbers as part of their 2013/14 insurance placements, 13 expect the number of passengers using their operations to rise, generally by around 5%. While this is slightly less bullish than the 9% increase in passenger numbers forecast by the airlines in the region, it does suggest that there is broad agreement across the region that 2014 will be another positive year for the aviation industry. Airport passenger forecasts have always been somewhat lower than the airline operators forecasts. The cost of insurance premium rose at only two airports in the region. One of the increases was only marginal and the other was the result of two new airports joining a group programme. Europe Only four of the 45 European airport programmes saw the cost of their lead premium rise for 2013/14. Nearly half of the placements saw premium fall by 10% or more. Of the 22 airports that made passenger forecasts available, the average passenger increase was around 7%, a healthy rise in a mature region that suggests the return of economic confidence. Interestingly, the 32 airports and airport authorities that forecast aircraft movements suggest that the numbers of aircraft take-offs and landings in the region will fall by 2% during the course of 2013/14 insurance programmes. This potentially reflects the commercial introduction of new generation widebody aircraft. Analysis 17

20 Outlook for 2014/15 At this stage there is little evidence of a change in conditions in the airport sector in the short term. Ultimately, the airport book of business continues to offer stable returns for underwriters so capacity is likely to continue to be healthy, driving down the price of airport insurance. That said, the soft markets have been in place for nearly a decade, a significant length of time during which the value of the market has drifted down year on year, to the point where 2014/5 could see the sector worth nearly half the US$130 million value it held a decade ago. Ultimately this suggests an efficient market, where price reflects the perceived level of risk. As safety procedures, technology and working practices continue to improve, the experience of the mature aviation sectors crosses over with the innovation of emerging regions and risk modelling techniques improve, the price is likely to continue to drift down. As a result, while the value of the market has changed significantly over the last ten years, there is little reason to think that it has yet reached its nadir. 18

21 Manufacturer Global Representing over 80% of the premium placed in the global aerospace insurance market, the manufacturing sector continued its trend for being the least soft of the three aerospace sectors. The premium movement year on year remained flat on average for 2013/14 insurance programmes compared to 2012/13. Percentage change 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. Notwithstanding this, almost 70 of the 110 manufacturers that placed their programmes in the global aerospace insurance markets saw their price fall. Of the 40 placements where the cost of insurance rose, the majority forecast a healthy or significant turnover increase. Looking at the maintenance, repair and overhaul (MRO) sector, which is included with manufacturers as a result of their similar risk profile, turnover is forecast to be up at all but three of the 16 global Manufacturer average quarterly percentage premium movement (original reporting currency percentage change) Source: Aon Risk Solutions operations included in this report. Average turnover increase is 23%, reflecting brisk business as a result of reconditioning aircraft for new operators as the global fleet renewal process continues. Lead premium, falling on average for 11 of the 16 programmes, is due to fall by nearly 5% on average. Component and engine manufacturers are expecting a 3% average increase in turnover, although this is coupled with an average premium increase of around 3%. The numbers are influenced by three operations which have seen their premium double as a result of claims and merger activity. Analysis 19

22 Stripping these of the data and average premium change would be -3%. Airframe manufacturers have witnessed an average fall in lead premium of 6%, with only two of the 18 included in the Aon data set seeing the price of lead premium rise. This is heavily influenced by one major renewal that has restructured its insurance programme to retain more of the risk and reducing the insurable aspect. Turnover for the sub-sector is forecast to rise 4%. Americas Premium for the manufacturing sector represents 95% of the total placed in the Americas. While this dominance could appear to be surprising given the maturity of the aviation industry in North America, a significant proportion of airports in the region place their insurance in local markets, falling outside of our data set as a result. The 2% average reduction in lead liability premium in the Americas is in line with the long term trend, which has seen prices fall in the region by a little over 1% on average since Just under 60% of 2013/14 programmes saw their premium fall, with five of the six service providers in the region seeing premium come down by more than 15% at renewal. Asia Pacific The Asia Pacific region is also dominated by manufacturers, which contributed nearly 70% of the annual aerospace insurance premium in This continues a steady increase in the proportion of total premium paid by manufacturers in the region, which has risen from 55% in 2009/10 insurance programmes to its current level. The level of global premium that Asia Pacific manufacturers represent continues to be around 5%, making it the third smallest region in terms of manufacturing by some margin. Average turnover growth for manufacturers continues to be positive, averaging at around 13% for 2013/14 insurance placements in reporting currency. This compares to a global average of 7%. 20

23 Europe Reflecting the improving economic conditions, manufacturers in Europe are forecasting a 9% average increase in turnover during the course of 2013/14 insurance policies. The size of potential claims against manufacturers tends to be significant. Reflecting this increased perception of risk, while the average premium change for Europe as a whole was -7%, there was no change in the cost of average premium among the 30 European manufacturer renewals. One of the largest European aerospace programmes increased its self-insured retention level of its 2013/14 insurance programme. This change will have repressed the total premium for the year in the region. Outlook for 2014/15 Given some of the challenges that have faced new generation aircraft in the last 18 months, it seems likely that the manufacturing sector will continue to face scrutiny when placing insurance programmes. This caution should be tempered somewhat. There have been significant incidents and recalls during the last couple of years which have caused major challenges for airlines that have been forced to lease replacement hardware to ensure that they can honour their routes. While there has been a significant grounding claim (as discussed on p7), safety procedures and rigorous testing of systems have meant that there have not been any major hull or liability claims as a result of the recall. As a result, there has not been major activity in the aerospace insurance market, and average prices are likely to hold their current position for 2014/15 insurance programmes. Analysis 21

24 Service provider Global The service provider sector has enjoyed positive reception from underwriters over the last few years, a trend that continued for 2013/14 insurance programmes, where prices fell on average by 16%. There are a number of reasons why service providers tend to be dealt with more fairly than other sectors, but one of the key factors is that in the majority of cases claims tend to be relatively simple and resolved quickly without the long tail, abrogation issues that can arise in, for example, the manufacturing sector. The service provider sector continues to be the smallest in the aerospace industry, representing around 4% of total premium. There are some wide regional variations between its relative proportion in Africa (19% of regional premium total) and the Americas (1% of the regional premium total), reflecting the relative prominence of the manufacturing sector. Percentage change Service provider average quarterly percentage premium movement (original reporting currency percentage change) Source: Aon Risk Solutions Only three of the 45 service provider programmes placed for 2013/14 in the global insurance markets incurred premium increases. 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. 22

25 Americas Only six service providers in the Americas place their insurance in the global market, the rest relying on local markets which are perceived as being able to meet their risk management and insurance needs. Five of these six placements saw the cost of their lead premium fall by more than 15% for their 2013/14 insurance programmes. Much of this reduction is likely to be related to a falling amount of fuel forecast to be provided during the course of the placements. Asia Pacific Of the 11 service providers in the Asia Pacific region that meet the criteria for inclusion in this report, all bar one are refuellers. On average, these operations expect to supply 5% more fuel during the course of their 2013/14 insurance programmes, compared to a flat global average. This supports the positive passenger growth projections made by the airports in the region. The growth in fuel supplied continues the short term trend in the region. Despite the growth in product supplied, the cost of premium fell for nine of the 11 service providers in the region. Premium growth was only witnessed at operations where there was a significant limit movement. Europe The amount of fuel supplied by the 11 European refuelling operations is forecast to fall by 2% on average. This is likely to reflect the increased fuel efficiency of even second hand aircraft in comparison with the ones that they are replacing as the global fleet renewal process continues. Of the 19 European service providers overall, 17 are enjoying a reduction in the cost of lead premium during the course of their 2013/14 insurance programmes. Analysis 23

26 Outlook for 2014/15 The perennial question that faces the service provider sector after six years of reductions is whether the price of insurance reached its lowest ebb? At this stage the evidence suggests not. Demand for service provider risks as part of a balanced underwriting portfolio continues to be high and claims continue to be low and consistent, two traits that underwriters find exceptionally alluring. There is also the fact that refuellers represent nearly 80% of the number of insurance programmes in the sector. With the global fleet moving to more efficient aircraft, the amount of fuel being supplied is also drifting down, which also represents a gradual reduction in risk that underwriters are being asked to carry. In this type of environment the majority of service provider insurance programmes are likely to continue to see the cost of insurance fall, although naturally there will be exceptions where there have been claims. The recovery of the global economy could slow the rate of reductions somewhat during 2014/15 if exposures start to rise, but the impact is likely to be limited given that service provider contracts tend to gradually increase rather than leap forward. As a result, we expect insurance prices to continue to decline. 24

27 Regional analysis Each of the regions saw premium change broadly in line with global averages, with the exception of Africa where volumes are very low and subject to fluctuations as a result. Renewals Premium Premium composition Manf % (US$m) (US$m) % change % change (US$) % change (RC) Service Provider % Africa % $5.34 $ % -18% 22% 19% 60% Americas % $ $ % -1% 95% 1% 3% Asia Pacific % $44.06 $ % -5% 61% 10% 29% Europe % $ $ % -7% 68% 7% 25% Middle East % $16.98 $ % -8% 76% 9% 16% Total/Average % $ $ % -5% 83% 4% 13% Source: Aon Risk Solutions 34% 43% 6% Premium 3% 1% Number of renewals 6% 2% 21% 28% 56% Americas Total/Average Asia Pacific Europe Middle East -18% Africa -16% RC US$ -12% -5% -7% -5% -6% -7% -8% -6% -1% -3% Airport % Analysis Americas Asia Pacific Europe -20% -15% -10% -5% 0% 5% Middle East Africa Premium and renewals by region (proportion of renewals) Source: Aon Risk Solutions Percentage premium change by region 2012/ /14 (US$ and reporting currency) Source: Aon Risk Solutions 25

28 Americas From a premium point of view, the Americas were the most stable of the regions in terms of 2013/14 insurance programmes, with premium prices falling on average by 1%. Part of the reason for the ongoing stability is that the region is dominated by manufacturers, representing around 95% of total annual premium in the Americas. Manufacturers were neutral in terms of the changing price of premium for 2013/14 insurance placements (see page 19). Please note that there are a limited number of renewals in Latin America that meet the criteria for inclusion in this report (see page 32). As a result we examine the Americas as a whole, rather than breaking it down into North and Latin America. If you would like analysis that is more closely aligned to your region and sub-sector, please contact your Aon representative or aviation@aon.com. Percentage change Average quarterly percentage premium movement (Americas) (original reporting currency percentage change) Source: Aon Risk Solutions 26

29 Asia Pacific Of the 50 insurance programmes based in the Asia Pacific region, over 75% saw the price of lead premium fall, a slight improvement on the global position of just over 70%. Average lead premium reductions in the region were around the global average, with prices consistently soft since around Percentage change Reflecting the changing composition of the aerospace sector in the region, the proportion of manufacturers continues to rise, climbing from around 55% in 2009/10 to just under 70% for 2013/14 insurance programmes. Overall however, the Asia Pacific region is relatively small in the aerospace sector. For 2013/14 placements it represented well over 6% of the global total annual lead premium. This is an increase on the less than 5% it represented for 2006/7 insurance programmes, but it is still the third smallest region from a premium perspective by some margin. It is interesting to note that the proportion of the global total represented by the Americas has also risen during the same period, while the European proportion has declined from around 40% to around 34% Average quarterly percentage premium movement (Asia Pacific) (original reporting currency percentage change) Source: Aon Risk Solutions Analysis 27

30 Europe The second largest region in the aerospace industry in terms of lead premium, European placements enjoyed better than average reductions in the price of their insurance for 2013/14. Prices fell at 85% of placements. Overall, the aerospace operators in the region have enjoyed six years of nearly uninterrupted soft markets. The slight change in conditions at the end of 2011 was driven by changes at five operators that renewed during the period, one of which had a major claim which the other four saw significant exposure changes. Percentage change Average quarterly percentage premium movement (Europe) (original reporting currency percentage change) Source: Aon Risk Solutions The region continues to be dominated by manufacturers, which contribute around 75% of total lead premium in the region. This is a significant change on the position for 2006/7 renewals, when manufacturers represented under 65% of renewals. The change has been the result of merger activity among airport operators, which have seen their proportion of premium fall by around 10% from over a quarter over the same period. 28

31 Middle East Aerospace activity in the Middle East continues to grow, but is still well below that of Asia, the Americas and Europe. It currently represents around 2% of total global premium, making it very difficult to discuss trends in the region in any meaningful way. Of the 15 renewals in the region, 11 saw the price of lead premium fall, nine of which by more than 10%. This means that while the region is small enough for changes at a single operation to have ramifications for the averages of the whole region, this was not the case for 2013/14 placements. Highlighting the prominence of the region as a global transport hub, for 2010/11 placements, airports represented 10% of the total premium in the Middle East. For 2013/14 placements, airports represented nearly 30% of total premium. Africa Africa s proportion premium continues to hover around 1% of the global total. There are six programmes in the region that meet the criteria for inclusion in this report and are placed in the London insurance markets. This is an increase on four recorded in 2010, but activity remains negligible in global terms. With so few renewals there is a risk that a single renewal could unduly influence the numbers for the entire sub-sector. In the case of Africa in 2013, five of the six aerospace insurance programmes were placed with a reduction, four of which by more than 15%. The region has enjoyed continued reductions in the price of insurance since 2008/9, although the soft market conditions have accelerated for 2013/14 placements. Analysis 29

32 Liability limit analysis Larger liability limit operations are dominated by manufacturers and operations with smaller limits tend to be airports and service providers. At the smaller end of the scale, operations may be able to place their insurance in local markets. As a result, the premium changes are correlated to the sector averages. Renewals Premium Premium composition Manf % (US$m) (US$m) % change % change (US$) % change (RC) Service Provider % Airport % US$2bn % $ $ % -3% 97% 0% 2% US$ bn % $86.04 $ % -7% 72% 1% 27% US$1-1.49bn % $ $ % -3% 75% 6% 19% US$ m % $32.45 $ % -8% 75% 12% 13% US$ m % $36.20 $ % -8% 49% 22% 29% US$0-499m % $30.87 $ % -8% 83% 6% 10% Total/Average % $ $ % -5% 83% 4% 13% Source: Aon Risk Solutions 30

33 Premium 4% 5% 5% 6% 8% 8% 16% Number of renewals 12% 31% 50% 13% 42% US$2bn+ US$1-1.49bn Total/average US$ bn US$ m -8% US$ m -8% US$0-499m -10% -9% -7% -3% -3% -5% -5% -7% -7% -5% -2% -8% -7% -4% -3% -8% -6% RC US$ US$2bn+ US$ bn US$1-1.49bn -15% -10% -5% 0% 5% US$ m US$ m US $0-499m Premium by liability limit Source: Aon Risk Solutions Percentage premium change by liability limit (US$ and reporting currency) Source: Aon Risk Solutions Analysis 31

34 Inclusion criteria/notes The information featured in this report is representative of market trends only. With vertical or fragmented marketing the exact percentage rate movements and/or shifts in premium can sometimes prove difficult. 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. We group these into three sectors, manufacturers, airports and service providers, based on their risk profiles and operation type. We focus throughout this review on lead premium in reporting currency (RC), unless stated otherwise. Looking at changes in premium that has been converted into US dollar terms can complicate the picture because it represents changes in the price of currency, rather than changes in the cost of insurance. Given the low level of activity from an aerospace point-of-view we have included Latin American operations within the overall Americas regional summaries. The airport sector includes air traffic control (ATC) operations. The manufacturer sector includes maintenance, repair and overhaul (MRO) operations because of their similar risk profiles. Unless otherwise stated long-term loss refers to the period 1995 to Please note figures may differ due to rounding. Due to the sensitive nature of the issues involved, the losses overview features only those incidents with an incurred hull and liability loss value of US$1m or above. We must point out that due to the nature of this type of document, Aon cannot be held responsible for any loss or damages caused through the use of any information contained herein. While we try to comment on issues we know to be fact, we are fully aware that in gathering the information contained herein from various sources there is always the possibility of inaccuracy. We can therefore only claim that the information is correct to the best of our knowledge at the time of publication. 32

35 We must point out that due to the nature of this type of document, Aon cannot be held responsible for any loss or damages caused through the use of any information contained herein. While we try to comment on issues we know to be fact, we are fully aware that in gathering the information contained herein from various sources there is always the possibility of inaccuracy. We can therefore only claim that the information is correct to the best of our knowledge at the time of publication. Analysis 33

36 For more information, please contact: Mike Smith Aviation and Space Business Leader +44 (0) Danny Green Client Executive +44 (0) David Reed Chief Commercial Officer, Aviation +44 (0) Martyn Holland Head of Aerospace +44 (0) Vincent Wallace Client Executive +44 (0) Paul Mitchell Head Business Analyst, Aviation +44 (0) FP: 8733 Aon Risk Solutions Global Broking Centre Aviation 8 Devonshire Square London EC2M 4PL United Kingdom +44 (0) aon.com/aviationinsight This document has been produced using a minimum of 50% recycled material from a sustainable forest. Published by Aon Limited. Registered office 8 Devonshire Square, London EC2M 4PL Copyright Aon Limited All rights reserved. No part of this report may be reproduced, stored in a retrieval system, or transmitted in any way or by any means, including photocopying or recording, without the written permission of the copyright holder, application for which should be addressed to the copyright holder. Aon UK Limited is authorised and regulated by the Financial Conduct Authority