Plane Talking -  August 2011

Editorial - Steady as she goes

There is very little to report this month and whilst perhaps this should be welcomed, it is undeniably more interesting when the market is on the move.

Capacity remains more than adequate in most instances and this situation appears stable. There is continued talk of an insurer seeking an aviation team to set up in Lloyd's and if true, serves as a testament to the continued interest in the class.

The few renewals for the month reveal small increases in premium when compared with their expiring levels, but this is due to the anticipated increases in exposure for the forthcoming period rather than any hardening of premium rates. Overall, year to date premiums remain very similar to prior year levels.

We reiterate our previous assertions that the likely drivers of change to our market will be a reduction in capacity caused by one or a combination of the following:
Run of very high valued aviation losses (with significant liabilit components)

• Major market event (e.g. California earthquake) causing capacity to be pulled to support other business classes
• Sustained period of losses in the class forcing capacity providers to withdraw due to a lack of confidence with the future prospects of profit

Indeed all of the above would result from the actions of capacity providers or reinsurers rather than those directly engaged in the business. Potential drivers of change from within the market include:

• Significant reduction in demand through self-insurance
  
• New products that challenge the status quo

As mentioned in this edition's Lead Lines, unlike energy buyers, very few airlines have the financial strength to self-insure, even if premium levels made this an attractive option.

In conclusion our market appears far from being in control of its own destiny and whilst underwriting results continue to avoid embarrassment for investors, the current market conditions will prevail.

 

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