plane talking march 2012 v1_layout 1 - jlt
TRANSCRIPT
Executive SummaryLITTLE CHANGE ON THE HORIZON
PlaneTalkingAEROSPACE MARCH 2012
This edition includes...
Executive Summary 1
Lead Lines 2/3
Market Meters 4/5
Renewal Analysis 6/7
Loss Analysis 8/9
Market News 10/11
With market capacity high, it seems underwriters are keen to, at least, maintain premium levels and, with the constant increase inexposures this translates into rate reductions as seen in this months renewals. This trend is continuing into April, from what has beenseen so far, with renewals achieving target reductions. As a result of this drive for premium income the effects on rating seem to beimpacting other aviation subclasses too, General Aviation (GA) being a good example where double digit rate reductions are availableon the more attractive risks.
We reported last month the aviation market has performed well for underwriters and the Lloyds results published recently reinforcethis view. Indeed, Aviation’s calendar year underwriting result outperformed all other specialty classes within Lloyds for 2011.Perhaps unsurprisingly in this environment, capacity is also at a high with enough to quell any rating pressures. Even if there werecapacity loss from events unrelated to Aviation there is enough latent capacity to take up the slack and maintain the current level.
As our lead lines Alain Burguiere says, market rates have been on a general decline for a long period now and this can not continueindefinitely. The market it seems is poised, waiting to see if there is change around the corner but the questions of how, why andwhen the market will change are questions nobody seems to be able to answer just yet. The advantages that quality security canoffer are becoming ever more important, there is far more to this market than just price and capacity but with the recent good classresults and plentiful capacity we can’t see significant market wide change occurring any time soon.
What comes next onthe airline market?2011 year ended well for aerospace Insurersand most of the markets generated a healthyunderwriting profit. One should not howeverforget that the airline market has beenunprofitable for the previous four years.
Firstly, I would like to emphasize what anamazing product we Insurers deliver to ourairline clients. We are indeed deliveringcoverage for an unlimited number of aircraftvalued higher than USD350m; we cover airlineliabilities arising out of their activities for up toUSD2.25bn and their third party war liabilitiesfor USD1bn. I am not aware of any otherbranch in the speciality risk markets that isable to offer such a broad sleep easy solution.
Our product is unique and has beenextremely resilient over the last 50 years. Ourproduct is not a commodity and no airline orgrouping of airlines is capable today or in theforthcoming years to replace airline Insurersthrough alternative risk transfer solutions orrisk retention via their captive Insurancevehicles.
No airline flies without insurance, banks wouldnot allow it, and would not risk the assetsthey finance, the public opinion and theregulator would not admit it also.
Secondly, I would like to stress how extremelyflexible insurers have been despite the factthat we are in an incredibly strong position.Not only have insurers overcome thechallenge of the 9/11 events but hull, liabilityand war rates are now at their lowest levelsince the nineties, not forgetting that duringthe last decade alone exposures have morethan doubled.
Thirdly, aerospace Insurers, said to be a bitheavy and slow moving, have fully recognised,and sometimes anticipated in their rates thesteady improved safety standards of theindustry like the fly by wire, the TCAS,AGPWS, the SMS, CRM.
Lastly, we must not forget that insuranceresults outside our niche market are not good.The combined ratios of most of the specialityrisks insurers in 2011 are in excess of 100%and if modest profits have been claimed, theindustry as a whole has had to faceUSD100bn of claims in the last 12 months.
Lead LinesAlain Burguiere Head of Aerospace - Catlin
Alain Burguiere joined Catlin in2007 as Head of Aerospace.
He has more than 20 years ofexperience in the aviation andspace market. Alain started hiscareer with La Reunion Aerienneand from 2001 onwards he was incharge of underwriting andoccupied several senior positionsin underwriting and management.
Catlin Group Limited is a globalspecialist property and casualtyinsurer and reinsurer writing morethan 30 classes of business. TheAerospace division has a strongteam of 30 specialists underwritingall classes of aviation and spacebusiness throughout a network of10 offices worldwide.
Biography
I personally refuse tobelieve that price andcapacity is the soledriver of our market.
“”
Are you interested in
featur ing in Lead L ines, or
do you know someone who
is, i f so p lease contact us at :
/03
Aviation Insurers owned by multi linesspecialists and reinsured by the globalfinancial market cannot be totally immune.
After 10 years of uninterrupted ratereductions, the balance of our market todayis very fragile. On the other hand, Insuredsare logically waiting for a further year of ratereductions. Why not have an 11th year ofreduction after the 10th and why indeedwould the trend change? But can thissituation last for much longer? Are wereaching the bottom of the market or canthis market further go down? Can a majorairline claim make the market turn or not?
No one can tell, however we should keep inmind a few simple things:
One is good...The market is resilient and will not disappearno matter what happens as it always has inthe past. Catlin as such is a long term playerand will always offer a solution even in themost adverse conditions.
One is not so good...Nobody controls the market and nobody isable to say what the trend will be in thefourth quarter of 2012, but it is also true thatpast experience of cycles shows that themore we wait, the more explosive anduncontrolled will be the reaction.
Finally...Insurers are always dynamic and strive toremain profitable even in the worst moments,they simply adapt their offer and theirappetite to what the clients are ready to buy.Do the insureds want a market with aseamless service? Do the clients want tohave strong leaders? Do the clients wantcontinuity? Do the clients care aboutsecurity? Do our insureds wish us toinnovate? I personally refuse to believe thatprice and capacity is the sole driver of ourmarket.
I feel that, at the beginning of 2012, theairline market has reached a cross road, andwe will, all of us, Insurers, brokers andInsureds, have a collective responsibility ofwhat comes next. I am willing to think thatwe can collectively make this place betterand certainly more constructive for our longterm mutual benefit.
/09
Market Meters
Introduction...The JLT market meters that can be seenon the following page, are designed toprovide the insurance buyer with a morerealistic guide to what is happening in themarket.
Based on a composite rather than just theleader's rate change it reflects the effect ofboth the change in rate and the change indifferentials between markets (i.e. the"vertical marketing" process). In thecurrent climate with differentials typicallynarrowing this can have a significantimpact on what the final result will be.
We have excluded any abnormal renewalsfrom consideration (where rates have beenrecalibrated due to the influence of claims,major changes in exposure or otheranomalies) to give a more realistic andaccurate reading of the market trend.
The Rate Meter...This meter provides an indication of whatcore rate change a good quality, cleanrenewal with no growth can expect.Currently a 6% reduction in JLT's opinion.This may appear a low figure to some butremember the big rate changes havetended to come as a result of acquisition,grouping or extraordinary growth and thisis the composite figure not solely theleader's.
The Growth Meter...This meter reflects the amount of growththat a buyer may get "gifted" by insurers ona good quality renewal. For example, anAirline with 20% growth may only pay for60% of the growth amount in increasedpremium. Therefore the premium would beonly 12% higher than the previous year.Combine this with the 6% rate reductionand the premium would increase by 7.50%(or an overall rate reduction of 10.40%).
The Market Climate Meter...This meter gives an indication of where wesee the negotiating environment of themarket. For some time "neutral" wouldhave been our view, with capacity stable,losses average and underwriting resultspoor but not bad enough to bring aboutsignificant change. Now we are predictinga slight movement towards a "soft" market.After a profitable 2011, stable capacity andno significant losses this year, todaysmarket is a buyers one.
The Claims Meter...Balanced against the market climate meter,as shown on the following page, 2012losses, as was the case in 2011, continueto be lower than average. This hasprobably postponed the arrival of a hardermarket environment than otherwise mighthave been expected. Unfortunately, lossfigures can change overnight.
“Notwithstanding all theabove, remember no tworenewals are exactly alike”.
Market Meters
This meter shows the current market climate position. Asindicated above we are moving towards a softer market. Aftera profitable 2011, stable capacity and no significant losses thisyear, today’s market is a buyer’s one.
These meters indicate the year to date and 5 year averageclaims figures (including attritional estimates). 2012 so farcontinues to see very few losses, with those that haveoccured not being of any significant value. As always wemust remember that loss figures can change overnight.
Hard Soft
0%
20%
100%
40%60%
80%
0-6
(-) (+)
This meter shows the typical combined composite hull andliability rate change at renewal for a good quality airline withno losses and no growth. As indicated above the typical ratereduction is -6%.
This meter shows the typical amount of growth not chargedfor at renewal. Are your exposures increasing? You may getjust under half for free.
2012 Year to Date 5 Year Average
USD20.61m
USD1,760bn
THE COMPOSITE MOVEMENT IN AVIATION RATES
The Rate Meter The Growth Meter
The Market Climate Meter The Claims Meter
/05
Year to Date(Like for Like)
HullUSDm
LiabilityUSDm
TotalUSDm
2011 20 23 44
2012 18 20 38
% Change - 9% - 14% - 12%
* Net of brokerage and at lead terms
Renewal AnalysisEXPOSURES
This month’s comparisons are based ona larger number of airlines compared toJanuary and February. However most ofthese are relatively small in size soexposure differences remain inconclusive.
PREMIUMS*
The monthly reduction is marginal, withthe year to date figure unsurprisingconsidering the type of airlines that haverenewed so far this year.
RATES
Rate reductions inevitably followexposure movements and it is difficult todraw conclusion from what we have seenso far in the first quarter. April shouldproduce something more meaningful withthe first of the big airline renewals comingto the market.
-30%
-20%
-10%
0%
10%
20%
30%
March Year to Date
Cha
nge
Average Fleet Value Passengers
Year on Year Exposure % change.
March / Year to date - based on the latest
Information at 30 March 2012
Source: JLT Database
Year on Year Premium % change.
March / Year to date - based on the latest
Information at 30 March 2012
Source: JLT Database
Year on Year Rate % change.
March / Year to date - based on the latest
Information at 30 March 2012
Source: JLT Database
-30%
-20%
-10%
0%
10%
20%
30%
March Year to Date
Cha
nge
Hull Liabilities
-30%
-20%
-10%
0%
10%
20%
30%
March Year to Date
Cha
nge
Hull Liabilities
/07
COMMENT
Although there are 13 airlines renewingthis month, six of them have fleet valuesunder USD100 million. Among these areflag carriers such as Sudan Airways andMontenegro Airlines.
The most prominent airline overall thatrenews in March is Qatar Airways whichextended its policy from November.Qatar has an expiring fleet value ofUSD11.8 billion and passenger numbersof nearly 13 million.
As commented in last month’s edition weexpected Mexicana to return this monthbut this has now been delayed until May.
FORTHCOMING AIRLINERENEWALS
The month of April should provide thefirst real examples of what is happeningin the marketplace for 2012, with someimpressive airlines and airline groupingsrenewing their policies.
Included in our database for April wehave around 19 renewals, with 12 havingaverage fleet values in excess ofUSD100m.
The largest renewal of the month by along way is the International AirlinesGroup (IAG). Formed in January 2011,IAG combines British Airways and Iberiaand the consortium now includes inadditon to these Vueling, Air Nostrum,Aer Lingus, LAN and Comair. Alsoincluded in their renewal this year will beTAM from Brazil which formed an alliancewith LAN (Chile) last year to form thebiggest operation in South America.
Most of the larger airline placementstoday are made up of several carriersand thus the HNA Group from mainlandChina is the next biggest renewal in Aprilby fleet value. The HNA Group consistsof a number of individual operatorsincluding Hainan Airlines.
Other high valued fleets that come tomarket include Air Berlin, Jet Airways andSpicejet from India, and AerolineasArgentinas.
Source: JLT Database, based on current risks withAFV in excess of USD100m
Airline RenewalDate
ExpiringAFVUSD
IAG 1st April 29,073bn
Aerolineas Argentinas 1st April 2,102bn
Spicejet 1st April 1,520bn
Meridiana 1st April 876m
Air Mauritius 1st April 645m
Air Tahiti 1st April 412m
Air Madagascar 1st April 186m
TACV-Cabo Verde Airlines 1st April 159m
Air Berlin 4th April 6,269bn
Corendon Airlines 6th April 172m
HNA Group 7th April 14,514bn
Sky Ailrines 9th April 442m
0
10
20
30
40
50
Hull 2011 Hull 2012 Liabilities2011
Liabilities2012
US
Dm
Loss Analysis
0
10
20
30
40
50
Hull 2011 Hull 2012 Liabilities2011
Liabilities2012
US
Dm
FEBRUARY - AIRLINE LOSSSUMMARY
• Hull losses:
USD 15.13m
• Liability loss estimate of:
Nil
• Number of airline fatalities:
0
All Known Airline Losses Net of deductible
* The JLT liability estimates are providedmerely as a guide.
MARCH - AIRLINE LOSSSUMMARY
• Hull losses:
TBA*
• Liability loss estimate of:
Nil
• Number of airline fatalities:
2
All Known Airline Losses Net of deductible
COMMENT
* For various reasons we are presentlyunable to provide reserves for lossesincurred this month.
/09
MARCH LOSSES
• 5 March 2012- Buffalo Airways,Lockheed L-188 Electra (C-FBAQ),Canada
The aircraft's starboard undercarriagefailed to lower on approach toCambridge Bay Airport. The crewdecided to return to Yellowknife andsubsequently landed the aircraft onnose and port undercarriage.
• 8 March 2012- Manx2/Links Air, BAeJetstream 31 (G-CCPW), Isle of Man
The starboard undercarriage collapsedon landing at Ronaldsway due tocorrosion in the forward yoke pintlewhich caused the aircraft to veer off therunway. Damage was also caused tothe pannier, engine and propeller.
• 13 March 2012- Delta Airlines, Boeing737-700 (N309DE), USA
The aircraft was reportedly having itsengines tested at Atlanta when thebrakes failed and the aircraft slipped offthe taxiway. The aircraft ran down anembankment. The extent of damage isnot known though at least one enginedid strike the ground.
• 15 March 2012- Jet One Express,Convair 440 (N153JR), Puerto Rico
On initial climbout from San Juan on aregular cargo flight, the crew reported aproblem and their intention to return tothe airport. The aircraft lost height andcrashed into a lagoon. Initial reportssuggest an engine failure.
• 29 March 2012- Feeder Airlines, FokkerF-50 (ST-NEX), Sudan
On landing at Wau from Juba with 52people on board, the aircraft veered offthe runway and came to a stop withnose and port undercarriage collapsed.It is believed there were a number ofinjuries in the evacuation.
Market NewsNEWS IN BRIEF
....................................................................
QBE forms Global Reinsurance Business
QBE Insurance Group announced that it iscombining its worldwide reinsuranceoperations under a single managementteam and unified brand, QBE Re.
QBE Re will comprise the current statutorybusinesses of Syndicate 566, QBE Re(Europe), Secura NV and QBE Re(Americas). The combined business willhave a gross written premium of more thanUSD1.5 bn, across a well-balancedportfolio of property, casualty and specialtylines.
The business will be led by QBE's currentEuropean chief underwriting officer forreinsurance, Jonathan Parry, who willbecome chief underwriting officer of QBERe. Parry will be supported by a globalleadership team including: Paul Horgan(London) – Head of Property, Chris Larson(New York) – Head of Casualty and USMultiline, Peter Wilkins (London) – Head ofSpecialty Lines, Luc Boghe (Brussels) –Head of European Multiline.
The unified business will be backed byQBE Group’s "A+" Standard & Poor’srating and its "A" rating from AM Best. Itwill hold capital of more than USD1.9 bn,QBE announced.
CNA Financial agrees to acquire HardyUnderwriting
US-based commercial insurer CNAFinancial has agreed to acquire HardyUnderwriting Bermuda, a specialist insurerand reinsurer underwriting in the Lloyd'smarket, for USD227m.
With business operations in London,Bahrain, Guernsey and Singapore, Hardyunderwrites marine and aviation, propertyand specialty business, together with aproperty reinsurance account.
Hardy's Chief Executive Barbara Merry andunderwriting director Patrick Gage willcontinue to lead the business.
The transaction, which is subject toregulatory approvals, is expected to closeduring the second quarter of this year.
Starr Companies Awarded License inSingapore
Starr Companies announced that it hasreceived a direct general license from theMonetary Association of Singapore (MAS)to operate as a direct insurer in theRepublic.
According to a release, the insurancelicense was specifically granted to StarrInternational Insurance (Singapore) Pte., awholly owned subsidiary of Starr Insurance& Reinsurance Limited. Starr's insuranceofferings to the market include property,casualty, marine, aviation, financial linesand political risk insurance solutions.
UK Budget - Rise in Air Passenger Duty
The UK Government has confirmed in it’slatest budget that Air Passenger Duty(APD) will rise by eight per cent, or doublethe rate of inflation, with effect from 1 April2012. That will be followed by a furtherincrease linked to inflation in April 2013.
Since 2005, APD has risen by as much as360 per cent, making British fliers theworld’s most highly taxed.
Airlines and travel industry leaders joinedtogether to criticise the hike, claiming theGovernment was “squeezing the life out ofthe economy” with its “blinkered approach”to aviation tax.
The Government also revealed that inaddition to airlines, from April next yearowners of private aircraft are to be madeliable to pay the duty for the first time.
GAB Robins Aviation Office Closure
Following a strategic review of thepositioning of operations geographically,GAB Robins Aviation Ltd announced it hasdecided to close it’s Singapore Office witheffect from 23rd March 2012.
Frank Esaw will transfer to the USA and willsupport the Ft. Lauderdale operation withimmediate effect.
Mike Ellis will continue to be part of theAviation team and will provide cover for theAustralia/Asia regions.
/11
SIGNIFICANT RATING ACTIONS
AM BEST
Starr International Insurance
Ratings agency AM Best has assigned afinancial strength rating of “A” (Excellent)and an issuer credit rating of “a” to StarrInternational Insurance (Singapore) Pte.Ltd. (SIIS), a wholly owned subsidiary ofStarr Insurance & Reinsurance Limited(Bermuda) and an indirect wholly ownedsubsidiary of Starr International Company,Inc. (Panama), a private investment holdingcompany. The outlook assigned to bothratings is stable.
Caisse Centrale de Reassurance (CCR)
Ratings agency AM Best has removedFrench state-owned reinsurer CaisseCentrale de Reassurance (CCR) from beingunder review with negative implicationsand affirmed its financial strength rating of"A++".
STANDARD & POORS
Thai Reinsurance
Ratings agency Standard & Poor's affirmedits "BBB+" insurer financial strength ratingon Thai Reinsurance Public Co. Ltd. (ThaiRe). At the same time, Standard & Poor'sremoved the rating from CreditWatch,where it had been placed with negativeimplications on 10 November 2011. Therating outlook is now negative.
Asia Capital Re Group
Ratings agency Standard & Poor's affirmedits "A-" financial strength rating onSingapore based Asia Capital ReinsuranceGroup (ACR). At the same time, Standard& Poor's removed the rating fromCreditWatch, where it had been previouslyplaced with negative implications. Therating outlook is now negative.
• Chartis has appointed a new directorfor its UK commercial lines operation.Jacqueline McNamee, as ExecutiveDirector, Commercial Lines UK, willhead up the property, casualty,financial and specialty lines businessessuch as aviation and marine.
McNamee will report to Nicolas Aubert,Managing Director, UK, and toEmmanuel Brule, Executive Director,Commercial Division Europe.
• Kiln Group has named Paul MacMillanas its new active underwriter foraviation. MacMillan replaces PaulLetherbarrow, who moved to QBE lastyear to head that company’s aviationteam as the replacement for Emilio DiSilvio who retired at the end of 2011.
• Lloyd’s of London has revealed thatDirector of International Markets JoseRibeiro will leave Lime Street in May totake up a new CEO role overseas.
• Starr Companies has announced thehiring of Chan Tat Yoong as thePrincipal Officer of its new Singaporeoperation Starr International Insurance(Singapore) Pte.
• Insurance Broker Willis announced thatit has dismissed Terry West, Director ofthe Willis Eastern European aviationoperation, for gross misconduct.
ARRIVALS AND DEPARTURES
JLT Specialty Limited
6 Crutched FriarsLondon EC3N 2PHTel +44 (0)20 7528 4000Fax +44 (0)20 7528 4500www.jltgroup.com
Lloyd’s Broker. Authorised and Regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: 6 Crutched Friars, London EC3N 2PH. Registered in England No.01536540. VAT No. 244 2321 96.
© March 2012
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Editorial Team
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Business Contacts
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