Newsletter Sign-up

By CYRIL TUOHY, managing editor of Risk & Insurance®

Hull and liability rates for U.S. airlines and general aviation saw decreases of as much as 10 percent during fourth-quarter-2010 aviation insurance renewals, but the good times may not last much longer as carriers look to increase rates.

Bruce Fine, Marsh's U.S. aviation practice leader, said that buyers should keep in mind that the soft market is approaching its cyclical end. Carriers, he said, in an interview with Risk & Insurance®, are looking at the tail end of a soft market and "to position themselves toward the future," he said.

In its 2011 Global Insurance Market Report, Marsh noted that it had noticed a "slight shift" in the fourth quarter regarding hull and liability renewals for general aviation, from flat to 7.5 percent.

Marsh said that trends to watch in 2011 in the North American general aviation segment included the increase in sales of new and used planes; competitive pricing for liability limits; slight, if any, decreases in premium rates; and continued minimal losses.

"In general aviation, in 2010, rates were down roughly 0 percent to 5 percent, so a flattening occurred as compared to steep declines since 2006," said Jeff Moitozo, chief underwriter, North America, for Chartis Aerospace Insurance Services Inc.

General aviation was hit by the collapse of a hangar at Dulles International Airport, which affected mainly reinsurers, "and pricing for 2011 will reflect that," the Marsh report said. The Dulles Jet Center outside Washington, D.C., collapsed following a heavy and wet snowfall. Several private jets were damaged.

In the airline segment--which saw no fatalities in the United States last year despite U.S. carriers flying more than 10 million flights and ferrying more than 700 million passengers, the National Transportation Safety Board reported--insurers were likely to continue to push for increases in rates and premiums in 2011 to reduce the deficit, the Marsh report also said.

Unless a catastrophic loss or two force carriers to raise rates, it's not going to be easy for carriers to make a profit, Fine said.

TOO MUCH CAPACITY AN ISSUE

Brian Glod, the U.S. airline practice leader for Marsh, said that capacity appeared to be tightening due to more disciplined approaches to underwriting.

It was in the segment of aircraft products liability for general aviation manufacturers, where rates were up by 10 percent to 15 percent with higher retentions, that the market in 2010 and at the start of this year witnessed a squadron of newcomers.

QBE, the large Australian carrier, for example, landed onto U.S. aviation underwriting shores in February of this year, declaring it would be writing "all types of aircraft except for military and major airlines."

Talbot Syndicate began to write aircraft products liability aggressively in 2010. Alterra, formerly MaxRe, is taking a more active interest in writing products liability from a lower attachment point, the Marsh report said.

But it was Ironshore Specialty Co., thanks to a deal with C.V. Starr, that went in big. Ironshore last year said it would offer coverage to airlines, aviation manufacturers, airports, refuelers, fixed-base operations, corporate aircraft and other general aviation risks, the Marsh report also said.

Then, to top it all off, Hiscox in October announced that it, too, was joining the underwriting party for aircraft products liability.

Beneath the excitement, Fine has noticed "selective shifts" taking place among the 25 or 30 carriers worldwide that underwrite U.S. airline liabilities.

Some carriers, he said, have decided to underwrite all four U.S. aviation marketplace categories--aircraft product liability, aircraft leasing/financing, general aviation and airlines--while other carriers were more comfortable sticking with one or two categories only.

"In the absence of a market-changing loss, capacity is likely to remain roughly the same for 2011," Glod said, and the abundance of capacity is likely to offer insureds a plethora of choices.

"The general market consensus is that we don't need more capacity, but it's great news for buyers," said Moitozo. "For a Fortune 500 buyer looking to cover his or her fleet, there are plenty of choices."

March 1, 2011

Copyright 2011© LRP Publications