The Airport Casualty Market Overview ACI-NA Annual Risk Management Conference West Palm Beach, Florida John C. Geisen Senior VP Aon Aviation January 2014 Prepared by Aon Risk Solutions Global Broking Centre Aviation
Contents The Aviation Insurance Market The Aerospace Market The Airports Market Airports Market Capacity 2014 Expectations
The Aviation Insurance Market
The Aviation Market What is it? The market is comprised of insurance companies prepared to underwrite/cover fortuitous business risks in the aviation industry It is a true financial market the commodity that is traded is insurance capacity to underwrite risk The insurance market is international and it is accessed by brokers worldwide The risks are: airline helicopter general aviation corporate aircraft operators manufacturers, airport authorities, civil aviation authorities and aviation service providers (aerospace)
Aviation Insurance Market Principal Customers Principal customers Airlines General aviation operators Banks and finance houses Airport authorities Air traffic control authorities Ground handlers Aviation refuellers Manufacturers (prime and component suppliers) Repair/service/maintenance/facilities Space Limits Today provides maximum insurance limits of up to: Hull U$375,000,000 Liability US$2,250,000,000 Aerospace
Aviation Markets by Estimated Income Aerospace - Liability Subscription/100% 25 Underwriting Units Airport Authorities/ATC Manufacturers Repair and Service Ground Handler/Refueller Financiers Space Hull/Contingent Cover Airline Subscription Market 48 Active Underwriting Units Hull, Liability and Spares Excess Liability - non-war 14% Hull War Subscription Market 15 Underwriting Units 2% 45% General Aviation Subscription Market/100%/Treaty 24 Active Underwriting Units Hull, Liability, Spares and War Corporate/Government/Commercial Private/Agri/Emergency Operators Fixed Wing/Helicopters 33% 2% 4% Excess AVN52 Subscription Market/100%/ Approx. 20 Active Underwriting Units Hull Deductible 100% Market 5 Underwriting Units Estimated Premium Income US$4.9bn
The Aviation Insurance Market As goes a significant segment of the market, so goes the market you face Prepared by Aon Risk Solutions Global Broking Centre Aviation
US$ Billions World Airline Premium and Claims 2008-2013 $3.0 $2.5 Premium Claims Average Five Year Premium (2008-2012) Average Five Year Claims (2008-2012) $2.0 $1.5 $1.0 $0.5 $0.0 2008 2009 2010 2011 2012 2013 2013 Does not include Q3 and Q4 premiums, the heaviest buying season for US airlines but the reduction trend will shown that lower profit will be realized than seen in 2012
US$ Millions Cumulative Loss Graph 2013 (Including minor losses) The total claims figure for 2012 was substantially below the long and medium term averages 2012 has the lowest loss total since the 1980 s 2013 losses are already above the long term average In contrast 2009 and 2010 losses were the highest on record excluding 2001 (which includes 9/11) $1,750 $1,500 $1,250 $1,000 $750 $500 2012 2013 Average 2009-2013 Average 1996-2013 $250 $0 Jan Mar May Jul Sep Nov Source: Aon ACRaSh Database Excludes September 11 th Losses
The Aerospace Market
The Aerospace Market Aerospace risks are categorized as follows: Manufacturers Prime engine and airframe Maintenance repair and overhaul (MRO) Sub-component manufacturers Service Providers Refueller / defuellers / refiners Fixed base operators Caterers Security screening companies Freight forwarders Airport Airports and associated ground service providers Air traffic control & Aviation Authorities
The Aerospace Market The cost of insurance in the aerospace market is continuing it s long trend of dropping slightly year on year Our analysis shows a 7% premium reduction so far in 2013 A 4% premium reduction was recorded for 2012 Different aerospace sectors and geographies are receiving their own levels of treatment, however Manufacturers are experiencing less favorable trading conditions than airports and service providers The emerging economies are achieving higher reductions than the more established regions
Aerospace Overview Renewals are still being looked at on an individual basis Changes in loss records, exposures, limits and self insured retentions are still having the largest impact on premiums Competition in all areas of aviation insurance are impacting the aerospace markets Excess capacity available for all but the most undesirable of risks For some sectors there is almost 300% available Although there are only a limited number of recognized lead underwriters for high indemnity limits or major prime manufacturers Layering is being utilized on a more frequent basis
US$ Millions Premium and Claims: Combined Aerospace (As declared for total 2011 renewals) $450 $400 Premium Claims $350 $300 $250 $200 $150 $100 $50 $0 2006 2007 2008 2009 2010
Number of Renewals Aerospace Annual Renewal Breakdown 50 2012 Renewals 2013 Renewals 45 40 35 30 25 20 15 10 5 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec * Figures To Date
US$ Millions Aerospace Annual Premium Breakdown $250 $225 2012 Premiums 2013 Premiums $200 $175 $150 $125 $100 $75 $50 $25 $0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec * Figures To Date
Worldwide Aerospace Liability Premium Income Refuellers/Others ATC $36m $30m Airport $95m MRO $46m Manufacturers $565m Representing 15% of the Global Aviation Income
Key Insurance Market Issues Current attitude towards major aerospace renewals Premium shrinkage The high level of airline hull losses could affect the aerospace market The effect on the market of a major loss Drivers for Capital Providers Capital providers believe that the aviation insurance class offers low frequency/high severity losses from a narrow band of premium income/portfolio Every US$ of aviation income needs an equal backing of capital plus a strong margin of return (+20%) Alternative classes may provide safer havens and better margins of return Return on capital adequate? Stay-in? On what basis? Re-allocate or continued attractiveness of diversifying risk portfolio Less or Uncorrelated to other cat loss
Premium Movements 2013: Aerospace The figures shown in the table below (including expiring figures) represent those of policies that have renewed in 2013, where we have two years of information and fall within our aerospace selection criteria only. The figures shown in the table below represent those of Accounts that have renewed in 2013 only. Month No of Renewals 2012 Premium (US$m) 2013 Premium (US$m) Premium Movement (US$) Premium Movement (Original Currency) 1Q 47 $56.62 $53.61-5% -7% 2Q 56 $138.16 $129.40-6% -10% 3Q 55 $255.49 $251.40-2% -2% October 1 $6.08 $5.60-8% -8% November 2 $10.03 $10.78 7% 2% 4Q 3 $16.11 $16.38 2% -1% ANNUAL AVERAGE/TOTAL 161 $466.38 $450.79-3% -7%
Premium Movements 2013: By Sector The figures shown in the table below (including expiring figures) represent those of policies that have renewed in 2013, where we have two years of information and fall within our aerospace selection criteria only. Month No of Renewals 2012 Premium (US$m) 2013 Premium (US$m) Premium Movement (US$) Premium Movement (Original Currency) Airport 62 $67.23 $62.68-7% -10% Manufacturer 74 $380.82 $372.36-2% -2% Service Provider 25 $18.33 $15.75-14% -14% ANNUAL AVERAGE/TOTAL 161 $466.38 $450.79-3% -7%
Airports and ATC
Airport and ATC Market Conditions Original currency premiums for 2013 renewals reduced by 10% This is a trend that s been continued for the last 6 years There was a 3% premium reduction in 2012 Airports and ATC generated approximately 14% of the overall aerospace market premium in 2012 Airports made up the majority of this income Similar relativity in 2013 expected when dust settles Estimated exposures appear to be on the rise again this year Capacity is abundant for airport liability risks The market is able to deploy almost 300% for a US$1bn limit This is of course only theoretical for the most desirable of risk
Premium Movements 2013: Airports The figures shown in the table below (including expiring figures) represent those of policies that have renewed in 2013, where we have two years of information and fall within our aerospace selection criteria only. Month No of Renewals Estimated Passenger Movement Estimated Aircraft Movement 2012 Premium (US$m) 2013 Premium (US$m) Premium Movement (US$) Premium Movement (Original Currency) 1Q 23-2% -6% $27.64 $26.32-5% -9% 2Q 19 3% 0% $21.20 $18.11-15% -15% 3Q 20-4% -7% $17.12 $17.01-1% -5% 4Q 5 46% 10% $6.42 $6.18-4% -4% ANNUAL AVERAGE/ TOTAL 67 3% -3% $72.38 $67.62-7% -9% Aon Risk Solutions I Global Broking Centre I Aviation
Airport and ATC Market Conditions Airports average quarterly percentage premium movement(original reporting currency percentage change)
Percentage Change Airline Market Conditions Average quarterly percentage premium change 2000-13 100% 75% 50% 25% 0% -25% 2000 2002 2004 2006 2008 2010 2012
Airport and ATC Market Conditions The airport premium is down by 9% for the year so far which equals the largest reduction we have recorded for this sector since 2005. 51 (76%) of the 67 renewals have achieved a reduction, only seven have had an increase, and four have renewed as before in terms of their premiums versus the previous year. Exposure movements are fairly benign for the renewals tracked so far, with estimates for passenger throughput up by 3% and a 2% reduction for aircraft movements. We predict that the majority of risks renewing for the remainder of the past year should have benefited from the competitive marketplace. Of course the exception to this would be those whose risk profile changes considerably, those seeking to increase coverage levels or with a deterioration in their loss record.
Market Capacity
US Airports/Service Providers with a US$1 Billion Limit Quota Share Structure : over 300% ACE Global London Synd. 2488 15.00% Inter Hannover 5.00% AIG 30.00% Kiln Aviation Synd. 510 5.00% Allianz Group 10.00% La Reunion Aerienne 7.50% Alterra (Max Re.) 3.00% Mitsui 15.00% Allied World 4.00% Munich Re. 10.00% Amlin Syndicate 2001 3.50% Antares Syndicate 1274 6.75% Argo 1.00% Aviabel 0.50% Axa Corporate Solutions 10.00% Axis Specialty 10.00% Berkley Aviation 10.00% Catlin Syndicate 2003 10.00% Chaucer Syndicate 1084 5.00% Faraday Syndicate 435 10.00% Global Aerospace 20.00% Hiscox Syndicate 9475 5.00% Partner Re. 5.00% QBE Syndicate 5555 25.00% SCOR 2.00% Sirius 3.00% Starr Aviation 10.00% Swiss Re 20.00% Talbot Syndicate 1183 7.50% Tokio Marine and Nichido Fire Ins. 3.00% Torus 3.00% Travelers Syndicate 5000 5.00% USAIG 15.00% XL Specialty 7.50% Note: Underwriters are unlikely to participate up to their maximum capacity.. The actual available capacity is dependant on a number of variables including geography, lead status, and desire for the given risk profile.
US Airports/Service Providers with a US$1 Billion Limit Quota Share Structure : over 300% Allianz 10% Partner Re 3.50% QBE 7.50% Torus 5.50% Sirius 5% Antares 5% InterHannover 3.50% Global 10% AIG 15% Starr 10% USAIG 15% Catlin 7% ARGO 3% $300M $50,000 SIR retained by insured $50k Sample Vertical or quota share structure with US, London and Continental capacity following lead above SIR
US Airports/Service Providers Capacity Single Market Structure Although participating on quota shares and leaders, there are also some players that will write 100% of an airport s liability risk in their own right or via a dedicated primary/excess mechanism Players of Note in the U.S. include ACE AIG Berkley Global Aerospace QBE Phoenix Starr Swiss Re XL
US Airports/Service Providers Capacity Single Market Structure $300M $300M Excess Horizontal Layer 200M xs 100M 100% $100M Primary 100% Primary 100% $5,000 SIR retained by insured $5k $5,000 SIR retained by insured $5k Sample Horizontal structure with excess capacity following lead above SIR and primary and single insurer above SIR, if any
US Airports/Service Providers Capacity Single Market Structure Market Commentary ACE AIG Aerospace Berkley Global Aerospace QBE Phoenix Aviation Managers Do not participate on Quota Share for US risks Total Limit is $750m-$1B using combination of admitted. $100M primary plus excess $650M London with Ace binding authority plus $250M excess open market Able to provide $850M Limit in house with admitted security. Will either lead or follow in a vertical placement but in a quota share approach usually restrict limit to $250M $100 Mil Limit with main focus on small to medium size airports. On the larger - Airline type airports more likely to look to quota share approach US domestic security up to $300M capacity on a first layer of a horizontal layered program. Also available to follow selected leaders only at 20% share. Capacity of $250M on primary or excess basis and up to 25% on Quota Share basis Capacity of $200M on domestic Old Republic security. Prefers to follow on quota share approaches.. Starr Aviation Capacity to $300M on under 5M enplanements and GA airports on admitted paper Surplus capacity of 300M or 30% of up to $1B on over 5M enplanement airports primarily in Regional or Major category and prefer to lead Swiss Re XL Capacity to $350M on GA risks including airports. On quota share approach, prefer no bigger share than lead. Capacity to $150M on horizontal and 10% of quota share approach to $1billion.
2014 Expectations
Outlook for 2014 Even after what seems to have been a seven year soft market, there appears to be little evidence that prices will begin to climb again in 2014. Capacity has continued to increase and there are rumors that even more is looking to enter the market. Meanwhile aerospace insurance brokers are also competing vigorously to attract or retain business and with competition from both the underwriter and broker perspective, it seems like the only beneficiary in today s environment are the insurance purchasers themselves. Added to the fact that the airline industry is continually improving from a safety perspective, loss levels for the products market should be similarly rosy. These elements combined will mean that we see little justification for a wholesale shift in the market direction in the near future. We expect the airport sub-sector of the aerospace market a sub sector of the broader market to act similarly
Other Topics in Market War risk changes in the US airline sector 10 year Authority of FAA to provide was expiring December 31 2013 & with it their ability to write the risk for US airlines absent some congressional action US airlines cover extended to expire December 31 2013 FAA Re-established ability to write the risk and renewed US airline s to 1/15/2014 As of first week of January, still open as to whether they will renew past 1/15 but expect it to continue through CY 2014 Lobbyist view / Backup plans and market consensus SMS impact as these plans proliferate Repeat of what we saw on airlines? Safety Actions of GA market having a positive impact as well? Airport staff manning previously TSA duties Impact? Risk Maturity Index Launched with the Wharton School at Penn, as a direct correlation between risk maturity and financial performance. Gaining traction in all sectors. Try it.
Thank You John C. Geisen, Senior Vice President Aviation National Practice Group Aon Risk Solutions 5600 West 83rd Street, 8200 Tower Suite 1100 Minneapolis, MN 55437 Mobile 612-839-9260 Office 952-807-0643 Fax 312-381-0574 john.geisen@aon.com