By RICHARD KORMAN, a freelance writer whose work has appeared in major national publications.
The aviation insurance market in 2012 could be described as a catastrophe market without the catastrophe.
With the Flight Safety Foundation reporting a record low of five commercial jet crashes, the current aviation insurance climate is "a volatile market with few losses," said Jeff Moitozo, AIG's aerospace division executive for the United States and Canada.
With few major accidents and plentiful capacity, renewal prices for airline hull and liability coverage in 2012 continued on a downward march, according to Aon Risk Solution's
most recent airline insurance market update. Through November, the average airline booked its coverage for 10 percent less than it paid in 2011, according to Aon.
All indications are that renewal prices, more than half of which are set in December, are trending downward, just like they did in November, said Stephen E. Alexandris, Aon's senior vice president and U.S. airlines practice leader.
Wary of their good fortune, insurers know that 2012 will likely end up as only the aviation insurance industry's second profitable year in the last six. This time, profits are deeper. Based on the first 11 months of 2012, estimated major and minor losses for the full year are $708 million, considerably below 2011's total losses of $1.03 billion, according to Aon. In 2012, premium came to about $1.6 billion, compared to $1.8 billion in 2011.
As far as pricing goes, insurers aren't giving up on the idea of cyclical soft and hard market swings, except that they now see the swings developing more slowly. Where a handful of dominant insurers once could change the direction of market pricing, capacity now is fragmented among many more insurers and reinsurers, each of which brings hundreds of millions of dollars of market clout, said AIG's Moitozo.
Some insurers see it as a time to stiffen their backs.
Allianz, one of several carriers to join the U.S. market in the last six years, is careful not to chase premium with unprofitable pricing, said Joseph Strickland, chief of the insurer's aviation and aerospace business in the Americas.
"The words I use with the underwriters, and they are probably sick of hearing it from me, is that we need sustainable pricing ... so that we'll still be in the market to service our customers," said Strickland, mindful of the cycles in which profits attract capacity until profit disappears.
"We see in some markets [that] some folks [are] losing sight of that very simple premise," he said. "We will not put expectations on underwriters to grow a portfolio at the expense of bottom-line results."
Some mystery surrounds whether a new pattern has been established for commercial jet travel safety. Do the record-low disasters reflect an extreme that won't hold up over a five-year period? It can't be known, said James M. Burin, director of technical programs for the Flight Safety Foundation in Alexandria, Va.
New technologies, higher reliability and proactive data analysis combined to deliver dramatically safer commercial air travel, said Burin. Through November 2012, only five commercial jets crashed, fewer than one every two months and half the usual average of one a month, said Burin.
No reliable data exists, he said, on hours flown or departures that would provide a clear safety picture for privately owned business jets, such as the one that crashed Dec. 9 in Mexico carrying singing star Jenni Rivera.
Steve Doyle, Willis' chief commercial officer for global aerospace business, said his company's renewal price research shows the soft market continuing -- and pricing without its customary reference points.
"Everyone will have different views of right price for each account and the right price for the market as a whole," said Doyle. "The challenge at the moment is we have a catastrophe market without catastrophe, so determination of the right price is going through recalibration and that's the point the market is wrestling with."
January 4, 2013
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