airline insurance market

indicators 2010/11 ]
the storm abates
 airline insurance market
indicators 2010/11

contents
foreword 03

executive summary 04

overview 05

analysis 09
loss analysis 10
quarterly analysis 14
regional analysis 15
fleet value analysis 21
sector analysis 25

inclusion criteria/notes 29
03 Aon airline insurance market indicators 2010/11
foreword
After hardening considerably in 2009, conditions in
the airline insurance market have been getting calmer
throughout 2010 so far. While lead hull and liability prices
continue to rise, the increases are tending to be lower than
exposure growth. This means that in real terms, the cost of
airline insurance is falling.
Even the string of major losses between May and August
does not appear to have created the conditions necessary for
the market to harden significantly at this stage. That said any
further losses could potentially mean that overall the airline
insurance market makes a loss for the fourth consecutive
year, something that could have ramifications for capacity
and pricing in 2011.
At this point, it seems that there is the prospect of a stable,
or even soft insurance market for the rest of 2010 and into
2011, which will be welcome news after the difficulties that
the airline industry has endured over the last couple of years.
The position is far more positive than it was this time last
year. According to the insurance programmes placed so far
this year, average fleet value and passenger numbers are
forecast to grow by 9% and 13% respectively, suggesting
that confidence is rising.
Peter Schmitz
Chief Executive Officer, Aon Risk Solutions Aviation
peter_schmitz@ars.aon.com
The airline industry is not out of the woods yet however.
There are plenty of organisations that have struggled to
the end of their reserves during the downturn and any
further turbulence in the economy could put them into
significant difficulties.
It has never been more important to talk to us about ways
that we can support your business above and beyond the
hull and liability aspects of your insurance. Whether it is
through the use of tools such as AonLine and RiskConsole
or services such as Aon Trade Credit that can offer you
support in the event of a third party supplier going out of
business, we have teams of risk management and insurance
professionals that can help ensure that your insurance
programme is as efficient as possible.
We hope that this interim report on developments in the
airline insurance market is useful. Please do not hesitate
to contact us if you would like to discuss any of the points
it raises.
Simon Knechtli
Aviation Leader, Aon Risk Solutions Aviation
simon.knechtli@aon.co.uk
 Aon airline insurance market indicators 2010/11 04

In comparison with January to July 2009, in 2010:

average lead hull and liability premium rose 7%
average fleet values grew 9%
average passenger forecasts grew by 13%

executive summary
Client and market insights
Premium: Lead hull and liability premium has risen on
average by 7% between January and July compared to the
same period in 2009. More than 60% of renewals have seen
their premium increase, compared to 80% in 2009. The
slowing level and falling proportion of increases suggests
that the market is stabilising.
Losses: The first third of the year passed with very few
losses but a string of major incidents between May and
August have meant that the 2010 loss levels are well
above the long term average. Unless the market hardens
considerably during the last three months of the year, any
further losses are likely to mean that the airline insurance
market will suffer a fourth consecutive year of limited returns.
This could potentially have a significant impact on capacity
and pricing in 2011, although the ramifications appear to be
limited at this stage.
Capacity: Capacity is currently fairly robust, with new
underwriters attracted to the airline insurance market by the
20% average increase in the cost of lead hull and liability
premium during 2009. The high level of losses means that
commitment may be tested during 2011, but conditions at
this stage appear to be stable.
Region: Passenger number and average fleet value (AFV)
forecasts are positive in virtually all regions so far in 2010,
suggesting that a degree of confidence is returning to the
industry. Unusually, Africa and Latin America have the fastest
growing fleets, although this is likely to change as the year
progresses and more of the world’s larger airlines renew
their insurance. At its current rate of growth Asia is on track
to hold its position as having the highest fleet value of the
regions (see page 15).
Risk insights
The correlation between exposure and premium increases is
closer than it has been for some time. This suggests that the
airline insurance market is reacting to risk perception rather
than previous trends for the first time in nearly a decade
(see page 7).
The airline industry has continued the recent trend for few
very high value losses. Between January and August there
were 23 incidents that meet our criteria, compared to a long
term average of 42. Total claims so far this year excluding
minor losses are US$996 million, compared to a long term
average of US$612 million (see page 10).
Nine airlines representing US$16 million of lead hull and
liability premium have left the criteria for inclusion in this
report as a result of going out of business, merging into
group insurance programmes or seeing their AFV fall below
the US$150 million threshold that we use for inclusion in this
data (see back page). Five have joined, bringing with them
an additional US$7 million. As a result, based on changes
that have taken place so far this year, there will be US$9
million less lead hull and liability premium in 2010
(see page 8).
If there are no more major losses during 2010, total losses
for the year including an estimate for minor losses will be
in the region of US$1.8 billion, while total lead hull and
liability premium for the year will be just over US$2 billion
if the current trends remain in place. Taking fixed costs into
account, this means that there is a very real possibility that
the airline insurance market will make a loss for a fourth
consecutive year.

Fleet Value: Exposure growth appears to be driving

increases in premium with the mid-sized operations seeing
the highest increases in lead premium, AFV and passenger
number forecasts. A significant loss has meant that the
US$1-2 billion fleet value segment has seen five year
credit balance (see back page for definition) fall by 105%
compared to 2009 (see page 21).

Sectors: For the first time in some time, the cargo sector
has enjoyed the most positive treatment from underwriters,
despite fairly strong AFV growth. The low-cost sector looks
as though it is recovering from the economic storm most
quickly, with both AFV and passenger numbers rising by
18% and 17% respectively (see page 25).
overview
 Aon airline insurance market indicators 2010/11 06

While the number of losses has been limited, their value has been high.
As a result, the insurance market faces the prospect of a fourth year
without returns from their airline books of business. Capacity is healthy,
but negotiations are going to be challenging.

overview
Average quarterly percentage premium change
2000-2010
Balance and poise?
The airline insurance market is now balanced in a difficult
100 position. After three years that look likely to have offered
returns to only a limited number of underwriters as a result
75
of the collapse in the price of airline insurance in the middle
Percentage Change

of the last decade, the high value of claims in 2009 and

the challenges posed by the global economic conditions,
50
underwriters were keen that 2010 should be a good year.

25 With two thirds of the year now behind us, it now looks
unlikely that the balance between premium and claims is
0 going to be achieved in 2010. Prior to May, losses were
comfortably below the long term averages but a string of
losses has now put claims well above the long term average.
-25
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Each loss that takes place between now and December will
eat into underwriters’ figures and make the airline insurance
market a less attractive place to put capacity.
This is a fairly simplistic analysis, not least because of factors
Proportion of increases and reductions
such as the difference between underwriting and calendar
(Percentage of lead hull and liability premium changes)
years. Equally, while there have only been a relatively small
100 number of high value losses, most underwriters appear to
have had an exposure, although this is very difficult to judge
from an external point of view.
75
Claims at this point in the year are now well above the long
terms average however, which will be causing concern
Proportion

50 among the underwriting community.

25

0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Reduction

As Before

Increase
 07 Aon airline insurance market indicators 2010/11

Average quarterly premium change compared

to exposure
Bittersweet?
From the perspective of an airline that is trying to get a good
50
price for its insurance during the rest of the year, this means
Premium
Exposure that negotiations are likely to be challenging, although
premium increases are not likely to be as significant as they
Percentage Change

25
were in 2009.
During the middle of the last decade, competition, coupled
with the significant price increases that followed 9/11, meant
that even airlines with significant increases in both passenger
0
numbers and average fleet value would see the cost of lead
hull and liability premium fall by 10% or more (see average
quarterly percentage premium change chart, page 6).
-25
2003 2004 2005 2006 2007 2008 2009 2010 These reductions mean that the airline insurance market has
now reached a position of balance that it has not enjoyed for
around a decade. The price of insurance now appears to be
moving up or down according to underwriters’ perception
Percentage fleet value movement of the risk being presented. The average quarterly premium
Percentage fleet value movement
change compared to exposure chart on the left shows that
15 there appears to be a closer correlation between exposure
and premium changes than there has been for some time.
10
Percentage change

The position that appears to be developing is that while

insurance prices are still rising, they are not rising as quickly
5 as exposure. As a result, in real terms, the price of insurance
is falling in many cases and there may be some reductions
0 available for airlines during the rest of the year and into
2011. Airlines and their insurance brokers will need to
-5 demonstrate clearly and convincingly why they deserve a
good deal however.
-10
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
 Aon airline insurance market indicators 2010/11 08

Apocalypse later? Many questions, few answers

In terms of airlines ceasing operation, overall the industry What, then, is the outlook for the rest of 2010 and what
appears to have weathered the economic storm relatively will be the position in 2011? The short answer is that it very
well so far, despite the many augurs of doom being delivered much depends on the level of claims for the rest of the year.
18 months ago. According to the data that we have from
Fundamentally the airline insurance market is healthy at this
the insurance markets, just over US$16 million has come out
point, capacity is strong and as a result following markets
of the lead hull and liability premium total so far this year
can be used to generate enough competition to ensure that
as a result of airlines going out of business, joining group
the cost of insurance is fairly closely aligned to the risk
programmes or seeing their AFV drop below US$150 million,
being represented.
the criteria for inclusion in our data set (see back page for
more details). At the same time, the market is perilously close to suffering
a fourth consecutive year without return. There is now
The majority of lost premium, US$8 million, comes from four
very little room for manoeuvre and further losses are likely
airlines that have gone out of business, although a further
to confirm 2010 as a loss making year for the airline
US$7 million has been the result of four other airlines going
insurance market. If this is the case, then commitment to
into group programmes. The growth of group programmes
the sector may fall in 2011 and prices could rise as a result.
is perhaps unsurprising given that the airline insurance
market tends to reward economies of scale. What this means for airlines renewing during the final
quarter of the year, as stated earlier, is that negotiations
At the same time, around US$9 million has come into the
are likely to be tough. Underwriters are going to need to
sector as a result of five new airlines joining the data set.
be convinced of the merit of an insurance programme
Four of these are the result of AFV growth while the fifth is a
before they commit to supporting it, let alone offering
new airline.
reduced prices.
The US$7 million difference between airlines leaving and
The evidence of 2010 so far is that there are few reductions
joining the industry so far this year is something of a turn-
available for airlines even if they offer a positive risk profile
around on the full year data from 2009, when US$41 million
and good loss history. While the market does not appear to
of lead hull and liability premium left the industry and
be softening, it is at least stabilising after the high rate of
US$91 million joined. The high number of airlines joining
increases in 2009.
the sector in 2009, 26, was the result of fleet growth but
also restructuring and airlines taking their insurance policies At the beginning of the year we were discussing the
out of group programmes. It may be that if the economic potential for equilibrium in the airline insurance market, and
position is stabilising and passengers returning, restructuring the point still stands. The market now appears to be reacting
becomes less urgent and as a result the number of new far more to what is happening in the industry today rather
airlines in 2010 will be lower. than responding to past premium trends. Unfortunately with
losses relatively high in 2010, it means that conditions are
There are still a number of airlines that could be described
likely to remain challenging for some time.
as being distressed, however. If the economic downturn
is protracted as some experts are suggesting, it could well For the latest analysis of airline insurance market trends,
be that there will be further airlines leaving the industry please go to www.aon.com/aviationinsight
as 2010 progresses. Mexicana’s recent difficulties support
this suggestion.
analysis
 Aon airline insurance market indicators 2010/11 10

While the number of incidents has remained relatively low, the value of
claims has now risen well above the long term average, and the number of
fatalities is also high. Irrespective of capacity, any further major losses this
year could change the market position going into 2011.

loss analysis
Cumulative losses 2010 Number of incidents global
(including minor loss estimate) January-July 1995-2010

2,500 2009 75 Average, 1995-2009

2010

2,000 Average 1996-2009

Number of incidents
50
US$ millions

1,500

1,000
25

500

0
0 1995 1998 2001 2004 2007 2010
Jan Apr Jul Oct

Cumulative fatalities 2010 Value of claims, global

(passenger and third party fatalities) January-July 1995-2010

750 2009 1,750 Average, 1995-2009

2010
Average 1995-2009 1,500
Number of fatalities

500 1,250
Value of claims

1,000

750
250
500

250

0 0
Jan Apr Jul 1995 1998 2001 2004 2007 2010
Oct

Number of fatalities global

January-July 1995-2010

750 Average, 1995-2009

Number of fatalities

500

250

0
1995 1998 2001 2004 2007 2010
 11 Aon airline insurance market indicators 2010/11

Africa
Value of Losses, Africa Asia
January-July 1995-2009
Annual value of incurred losses, Africa Value of losses, Asia
Value of Losses, Asia
January-July 1995-2010 January-July
January-July1995-2010
1995-2009

400 500
Average, 1995-2009 Average, 1995-2009

400
300

300
US$m

US$m
200
200

100
100

0 0
1995 1998 2001 2004 2007 2010 1995 1998 2001 2004 2007 2010

Annual fatalities, Africa

Fatalities, Africa
Fatalities, Asia
January-July 1995-2010 Fatalities, Asia
January-July 1995-2010
January-July 1995-2009 Source: Aon Loss Data January-July 1995-2009

200
Average 1995-2009 500 Average 1995-2009

150
Number of fatalities

Number of fatalities

100 250

50

0 0
1995 1998 2001 2004 2007 2010 1995 1998 2001 2004 2007 2010

Africa has had the highest value of losses during the January
Source: Aon Loss Data
Asia is also on the way to ending the year with
Source: Aonclaims and
Loss Data
to July period since the year 1995. The US$359 million of fatalities well above the 2008 and 2009 levels. Again, the
losses is nearly seven times the US$52 million the long term claims statistics are being inflated by a small number of
average of claims for the region, while the 174 fatalities are major incidents, rather than there being a general increase in
more than triple the 56 long term average. the value of claims across the region.

It should be pointed out that two incidents have driven
up the loss and claims statistics, accounting for all of the
fatalities and nearly US$350 million of the claims.
The high value of claims follows two successive years when
losses were very low. In 2009, claims for Africa for the entire
year totalled around US$25 million, while in 2008 they were
US$41 million.
Over the last fifteen years, the average value of claims for
the region is US$269 million, while in 2010, the region has
already seen incidents valued at US$225 million. At this rate,
any further incidents will take the region over the long term
average which could have pricing implications in 2011.
The long term average number of fatalities in the region for
a full year is 171, but 2010 has already seen 298 aviation
related fatalities. Again it is worth stressing that the high
number of fatalities is the result of three incidents, rather
than a cross-regional trend for higher loss activity.
 Aon airline insurance market indicators 2010/11 12

Europe Latin America

Value of losses, Europe Value
Valueofoflosses,
Losses, Latin America
Latin America
January-July 1995-2010 January-July 1995-2010
January-July 1995-2009

900
Average, 1995-2009 700 Average, 1995-2009

600

600 500
US$m

400
US$m

300
300
200

100

0 0
1995 1998 2001 2004 2007 2010 1995 1998 2001 2004 2007 2010

Fatalities, Europe Source: Aon Loss Data Fatalities, Latin America

Fatalities, Europe Fatalities,1995-2010
Latin America
January-July 1995-2010
January-July 1995-2009
January-July
January-July 1995-2009 Source: Aon Loss Data

250
Average, 1995-2009 250
Average, 1995-2009

200 200
Number of fatalities

Number of fatalities

150 150

100 100

50 50

0 0
1995 1998 2001 2004 2007 2010 1995 1998 2001 2004 2007 2010

After an exceptionally expensive year in 2009, 2010 has There have been four losses in Latin America during
Source: Aon the
Loss Data

been relatively benign in Europe so far. There has been first two thirds of the year, with a total incurred loss value
US$48 million of losses, compared to a long term January to estimated to be around US$59 million, compared to a long
July average of US$138 million. term average of US$82 million.

Europe has seen no fatalities covered under standard hull
and liability policies, compared to a long term average of 53
for the January for August period. While a zero fatality rate
is impressive, it should be pointed out that the region has
achieved the feat eight times since 1995.
The high value of claims last year was the result of a single
catastrophic incident which represented over 60% of the
total value of claims for the region in 2009.
There have been two fatalities in the region covered under
standard hull and liability insurance policies, compared to a
long term average for this point in the year of 50.
While loss levels for the region are very encouraging, the
average fatality level for a full year in Latin America is 103, so
a single incident involving a medium sized passenger aircraft
could bring loss levels to above average.
13 Aon airline insurance market indicators 2010/11

Middle East North America

Valueof
Value oflosses,
Losses, Middle
MiddleEast
East Value
Value of Losses,
of losses, NorthAmerica
North America
January-July 1995-2009 January-July 1995-2009
January-July 1995-2010 January-July 1995-2010
500 Average, 1995-2009 Average, 1995-2009
500

400
400

300 300
US$m

US$m
200 200

100 100

0 0
1995 1998 2001 2004 2007 2010 1995 1998 2001 2004 2007 2010

Fatalities, Middle East Fatalities, NorthAmerica

America
Fatalities, Middle
January-July East
1995-2009 Fatalities, North
January-July 1995-2009
January-July 1995-2010 Source: Aon Loss Data
January-July 1995-2010
150
Average, 1995-2009 350
Average, 1995-2009

300

250
Number of fatalities

100
Number of fatalities

200

150
50
100

50

0 0
1995 1998 2001 2004 2007 2010 1995 1998 2001 2004 2007 2010

There has only been a single loss in the Middle Source:East that
Aon Loss Data
meets our criteria so far this year, a fire at a spare parts
hangar that has been valued well in excess of US$350
million but involved no fatalities. Claims for this may evolve
as the loss investigators carry out their painstaking work.
By comparison there had been five losses in the region this
time last year, with a total value estimated to be around
US$222 million. Nearly 75% of this total was the result of
a single incident which involved 152 fatalities (144 of
which would have been covered under standard hull and
liability policies).
The region has an average fatality rate between January and
July of 19, and has had no fatalities during the period 13
times since 1995.
After a challenging 2009 when a single relatively minor hull
loss led to very high liability claims, losses in North America
Source: Aon Loss Data
have been very low so far in 2010.
There have only been three losses so far this year in the
region, none of which have included any fatalities that are
covered under standard airline hull and liability insurance
policies, although there have been two fatal injuries to crew
members in one incident. These will be covered under other
insurance policies.
Total incurred loss value in North America during 2010 so
far is just under US$6 million, compared to a long term
average of US$159 million. While this could suggest that
there is a strong potential for North America to deliver
a very impressive year from a loss perspective, it should
be remembered that a single loss can change the picture
significantly, particularly given the high value of liability
claims in the region.
 Aon airline insurance market indicators 2010/11 14

The market gradually became more stable during the first three quarters.
Despite the high level of losses, capacity should hold off the worst of the
potential increases.

quarterly analysis
Fleet Passenger
Total Renewals Premium Hull/Liability
Value Movement
2009 2010 % Est % % change % change 2009 2010 %
change of (US$m) (US$m) change
Annual
1st quarter 13 11 -15% 5% 7% 3% 39.68 44.80 13%
2nd quarter 49 50 2% 23% 5% 12% 215.71 232.31 8%
3rd quarter 38 33 -13% 15% 16% 15% 235.53 248.43 5%
Total/Average 100 94 -6% 44% 9% 13% 490.92 525.53 7%

Fleet Passenger
Total Renewals Premium Hull/Liability
Value Movement

2009 2010 % change % change % change 2009 2010 % change

(US$m) (US$m)
January 4 2 -50% 15% 8% 2.40 2.95 23%
February 3 2 -33% 30% -11% 5.45 7.41 36%
March 6 7 17% 3% 6% 31.83 34.44 8%
April 20 20 0% 2% 12% 105.43 114.21 8%
May 17 18 6% 11% 14% 72.61 74.62 3%
June 12 12 0% 1% 11% 37.68 43.47 15%
July 38 33 -13% 16% 15% 235.53 248.43 5%
Total/Average 100 94 -6% 9% 13% 490.92 525.53 7%

Airline monthly renewal profile Airline monthly premium profile

Airline Monthly Renewal Profile Airline Monthly Renewal Profile
(Number of renewals) (Amount of Premium)
(Amount of Premium) (Amount of Premium)
12 12
3 1. Jan '10 7. Jul '10 3
4 1. Jan '10 7. Jul '10
4 2. Feb '10 8. Aug '09 5 2. Feb '10 8. Aug '09
6
3. Mar '10 9. Sep '09 3. Mar '10 9. Sep '09
12
5
4. Apr '10 10. Oct '09 4. Apr '10 10. Oct '09
5. May '10 11. Nov '09 7 5. May '10 11. Nov '09
6. Jun '10 12. Dec '09 12 6. Jun '10 12. Dec '09
6
8
9
10
11 7

11
10 8
9
15 Aon airline insurance market indicators 2010/11

Lead hull and liability premium has risen in all of the regions so far this
year, but the fact that exposure also appears to be recovering from the
ravages of the global economic downturn suggests that confidence is
returning to the sector.

regional analysis
Total Renewals Premium
2009 2010 % change Est % 2009 2010 % change Est % of
Region of Annual (US$m) (US$m) annual
Africa 4 4 0% 29% 9.90 13.43 36% 13%
Asia 21 22 5% 43% 95.65 106.92 12% 21%
Europe 45 41 -9% 54% 174.00 186.93 7% 31%
Latin America 7 7 0% 35% 37.69 44.08 17% 36%
Middle East 10 7 -30% 41% 23.25 24.37 5% 18%
North America 13 13 0% 34% 150.44 149.80 0% 27%
Total/Average 100 94 -6% 44% 490.92 525.53 7% 26%

Fleet Value Passengers

Total % change Total % change
Region (US$m) (m)
Africa 2,950.35 22% 5.51 9%
Asia 39,669.89 5% 164.39 18%
Europe 58,394.33 8% 252.55 14%
Latin America 7,059.35 31% 35.76 28%
Middle East 3,259.79 17% 14.22 -14%
North America 47,661.84 11% 164.37 8%
Total/Average 158,995.54 9% 636.80 13%

Average Liability Limit Cost Per Passenger Credit balance

2010 % change Total % change 2010 % change
Region (US$m) (US$) (US$m)
Africa 925.00 0% 2.44 25% -72.79 -270%
Asia 868.18 -9% 0.65 -5% 246.03 7%
Europe 885.61 -1% 0.74 -6% 276.17 -21%
Latin America 657.14 5% 1.23 -9% -50.55 -27%
Middle East 1,050.00 15% 1.71 22% 62.96 -24%
North America 1,017.31 -6% 0.91 -8% 68.79 -58%
Total/Average 896.65 -2% 0.83 -5% 530.61 -34%
 Aon airline insurance market indicators 2010/11 16

Percentage lead hull and liability premium

change by region
Africa
At 36%, Africa has seen the most significant increase in
Africa: 36% average lead hull and liability premium so far in 2010. The
Latin America: 17%
increase is mainly the result of a major loss coupled with a
significant increase in average fleet value (AFV) and forecast
Asia: 12%
passenger levels at one the region’s carriers which saw
Europe: 7% premium rise by around 80% compared to the cost of its
Total/Average: 7% 2009/10 insurance programme.
Middle East: 5%
Of the other three programmes that have been placed, one
North America: 0% has had a reduction, one has seen its cost of lead hull and
liability premium hold steady and one had a slight increase.
0 5 10 15 20 25 30 35 40
Percentage % All three appear to have been the result of exposure changes.

The situation appears to be similar to this time last year,

when one of the four programmes to have renewed saw
Percentage average fleet value change by region its premium increase by a significant amount while the
other three saw more modest increases in line with the
Latin America: 31%
market average.
Africa: 22%
There is still significant scope for change in the region
Middle East: 17%
between now and the end of the year, with only 29% of the
North America: 11%
total expected number of renewals and only 13% of the total
Total/Average: 9% forecast hull and liability premium having been placed.
Europe: 8%

Asia: 5%

5 10 15 20 25 30 35
Percentage %

Percentage passenger projection change by region

Latin America: 28%

Asia: 18%

Europe: 14%

Average: 13%

Africa: 9%

North America: 8%

Middle East: -14%

-15 -10 -5 0 5 10 15 20 25 30
Percentage %
17 Aon airline insurance market indicators 2010/11
Asia
While more than 40% of Asia-based insurance programmes
have been placed to date, they are only estimated to
represent around 20% of the premium. On average, lead
hull and liability premium has risen by 12% in the region,
slightly above the industry average of 7%.
Projected AFV growth for Asia is the lowest of any of the
regions. This continues a pattern that has been apparent for
the last couple of years, with modest projections in place
for carriers that renew between January and July and more
ambitious growth plans becoming apparent later in the year.
Passenger numbers are projected to recover strongly in
Asia, on average expected to grow by 18% compared
to a 13% increase for the industry as a whole.
The increase is based on year on year passenger growth
projections of more than 10% at nearly a third of carriers
in the region. Around a third of the region’s 22 carriers
expect fleet reductions. These appear to be mainly the
result of restructuring.
The passenger growth is a significant turn-around compared
to this time last year, when nearly half of the carriers in the
region that had renewed were projecting passenger number
reductions of 10% or more.
Europe
Europe has pretty much set the pace so far this year. Lead
hull and liability premium in the region has grown by 7%,
the same level as the overall industry average. AFV has
grown by 13%, the same rate as the industry average, and
passenger numbers are only 1% below the industry average
of 9% year on year growth.
Part of the reason for this is that Europe is the most active
region in the airline insurance markets during the first
seven months of the year, with 54% of the total number of
expected programmes placed. The 31% of expected lead
hull and liability premium placed is only surpassed by Latin
America, where 36% of premium has been placed, but
Europe’s total premium placed dwarfs most of the other
regions at this point.
Again, the forecasts are significantly better than they were
this time a year ago, when AFV was expected to inch up by
2% and passenger numbers were expected to fall by 5%
compared to 2008.
It is worth making the point here that 2010/11 placements
appear to represent a recovery after the torrid time
endured during 2009 rather than a return to the strong
growth that the aviation industry enjoyed in the middle of
the last decade.

Latin America
Five of the seven Latin American airline programmes that
have been placed so far this year have seen their lead hull
and liability premium rise by more than 10%. All of these are
the result of projected increases in AFV during the course of
their 2010/11 insurance policies.
Conversely, passenger numbers are projected to grow
at only three of the seven airlines, one of which by just
over 2%.
It is worth noting that only around a third of both the
total expected number of airlines and lead hull and liability
premium has been placed at this point in the year. While
this is a relatively high proportion in comparison with some
other regions, it does leave significant scope for the numbers
to move as the year progresses. It also means that any
significant changes at any of the limited number of renewals
can have a significant impact on the direction of the regional
trends at this point in the year.
Aon airline insurance market indicators 2010/11 18
Middle East
Lead hull and liability premium for airlines in the Middle East
has grown by 5%, but this is based on only 18% of the
total projected premium that is expected to be placed
during 2010.
AFV in the region has continued its seemingly inexorable rise,
growing by 17% so far in 2010, following an 11% increase
during the same period in 2009, one of only two regions to
project an increase of more than 10% this time last year.
While passenger numbers are forecast to fall in the region
by 14% on average compared to 2009, this is based
on significant reductions at two of the region’s seven
programmes. As a result, there is a strong probability that
the position will change considerably once the full year data
is available.
This is particularly true given that the largest airline group
programme in the Middle East does not renew until
November. In 2009, the group represented around 60%
of the total annual lead hull and liability premium for the
region, and there is little reason to expect the position in
2010 to be significantly different. This group will have a
major impact on the full year trends for the region as a
result, particularly given that it has had a loss.
19 Aon airline insurance market indicators 2010/11

North America
Around a third of the total number of expected airlines and
lead hull and liability premium in North America has been
renewed so far this year. This means that there is significant
scope for the conditions to change during the rest of 2010.

Six of the 13 renewals that have been placed have seen their
lead hull and liability fall, with a further three enjoying the
same price as last year.

In terms of exposure, AFV is due to rise by 11% in the

region, while passenger numbers are due to rise by 8%.
This is relatively impressive given that North America boasts
probably the most mature aviation sector in the world.

The exposure increases also come on the back of a 2%

reduction in AFV for the same period during 2009, when
passenger numbers were expected to fall by 15%. There
are two ways of looking at this data. On the one hand any
growth is impressive given the maturity of the aviation sector
in North America. At the same time, given the reduction
in 2009, it means that the sector still has some way to go
before it can be said to have recovered from the worst of the
global recession.
21 Aon airline insurance market indicators 2010/11

While lead hull and liability premium has continued to rise for all
segments, the larger increases have come to the parts of the market with
the highest exposure growth.

fleet value analysis

Total Renewals Premium
Average 2009 2010 % change Est % of 2009 2010 % change Est % of
Fleet Value annual (US$m) (US$m) annual
US$5bn+ 6 8 33% 23% 193.36 199.28 3% 17%
US$2-5bn 10 8 -20% 31% 75.24 80.75 7% 29%
US$1-2bn 9 11 22% 46% 48.87 56.13 15% 36%
US$500m-1bn 21 23 10% 59% 74.12 77.79 5% 45%
US$150-500m 54 44 -19% 48% 99.34 111.58 12% 47%
Total/Average 100 94 -6% 45% 490.92 525.53 7% 26%

Fleet Value Passengers

Average Total % change Total % change
Fleet Value (US$m) (m)
US$5bn+ 83,124.37 7% 329.86 13%
US$2-5bn 31,958.19 6% 126.65 11%
US$1-2bn 15,573.19 28% 63.04 26%
US$500m-1bn 16,777.15 12% 62.42 11%
US$150-500m 11,562.63 10% 52.82 8%
Total/Average 158,995.54 9% 636.80 13%

Average Liability Limit Cost Per Passenger Credit Balance

Average 2010 % change Total % change 2010 % change
Fleet Value (US$m) (US$) (US$m)
US$5bn+ 1,156.25 -12% 0.60 -9% 458.57 -20%
US$2-5bn 1,362.50 -2% 0.64 -3% -177.37 -7%
US$1-2bn 972.73 -9% 0.89 -9% -5.99 -105%
US$500m-1bn 945.65 2% 1.21 -6% 172.85 -13%
US$150-500m 720.11 0% 2.11 4% 82.55 -8%
Total/Average 896.65 -2% 0.83 -5% 530.61 -34%
 Aon airline insurance market indicators 2010/11 22

Percentage lead hull and liability premium

change by fleet
US$5 billion+
There is very little activity among operations with an
US$1-2bn: 15% average fleet value (AFV) of more than US$5 billion, given
US$150-500bn: 12%
their propensity to renew during the final two months of
the year. Under a quarter of the total expected number of
US$2-5bn: 7%
programmes in the segment have renewed, which translates
Total/Average: 7% to less than a fifth of the total expected level of lead hull and
US$500m-1bn: 5% liability premium.
US$5bn+: 3%
As you would expect given the relative size of the segment,
0 5 10 15 20 exposure growth in terms of both AFV and passengers is
Percentage % relatively close to the average. The rise in both is a significant
turn-around from the same time last year in the segment
when AFV was due to fall by 2% and passenger numbers
Percentage average fleet value change by fleet value expected to fall by 8%.

Carriers in this segment tend to generally receive the best

US$1-2bn: 28% treatment from the insurance markets because of the
competition for involvement on these high profile accounts.
US$500m-1bn: 12%
There are two reasons for this competition: the segment has
US$150-500bn: 10%
a relatively good safety record and participating on this type
Total/Average: 9% of programme can take underwriters a long way towards
US$5bn+: 7% their annual targets for their airline books of business.
US$2-5bn: 6%

0 5 10 15 20 25 30

Percentage %

Percentage passenger projection change

by fleet value

US$1-2bn: 26%

Total/Average: 13%

US$5bn+: 13%

US$500m-1bn: 11%

US$2-5bn: 11%

US$150-500bn: 8%

0 5 10 15 20 25 30

Percentage %
23 Aon airline insurance market indicators 2010/11
US$2-5 billion
With around 30% of the expected programmes with an
AFV of between US$2 billion and US$5 billion renewed, the
numbers are likely to at least be indicative of the direction of
the segment for the full year.
The average lead hull and liability premium increase of 7%
is the same as the overall market average, but exposure
growth in the segment is slightly below the average, with
6% growth in AFV compared to 9% market average, and
passenger numbers due to grow by 11%, compared to a
13% market average.
Credit balance has continued to fall, driven down by the
relatively high number of losses carriers in this segment have
suffered. This time two years ago, the five year credit balance
was around US$410 million. In 2009 this had declined to
minus US$122 million and has now dipped further to minus
US$177 million.
US$1-2 billion
The smallest segment by lead hull and liability premium has
witnessed the largest increase in average premium, nearly
twice the industry average. This is the result of three of the
11 airlines that have renewed so far this year seeing their
lead hull and liability premium rise by more than 30%,
mainly the result of exposure changes.
That said, the largest increase in the segment has also
suffered a number of losses in recent years and has the
second largest negative credit balance of all of the airlines
that have renewed so far this year, which will also have had a
major impact on its insurance costs. The fact that this airline
is projecting a significant rise in its AFV but a more modest
rise in passenger numbers suggests that it is investing in the
safety of its fleet as opposed to simple short term growth.
This approach is likely to be looked on favourably by
underwriters if the organisation’s credit balance moves to a
positive position over the next couple of years.
Given that the renewals so far this year represent only a
third of the total expected lead hull and liability premium,
it is difficult to say if the current trend will hold. It should be
pointed out, however, that last year there was no difference
between the premium change reported for the first seven
months of the year and the full year data.

US$500 million-US$1 billion
Lead hull and liability premium in the second smallest
segment of the industry according to AFV rose by a relatively
modest 5% during the first seven months of 2010. There is a
relatively even spread of premium increases and reductions
in the segment, mainly the result of exposure changes.
The segment’s average premium change could have been
better but for six of the 23 renewals in the segment seeing
their premium rise by 20% or more. While the renewals that
have occurred so far this year represent just under half of the
segment’s total annual premium, it could be that the impact
of these six could be diluted as the year progresses and
airlines with an AFV of between US$500 million and US$1
billion may enjoy an improved average at year end. It
should be pointed out that the segment saw its average
premium rise by nearly 30% during 2009, compared to
an industry average of 20%, so it may be that there is
something of a reassessment of the risk that airlines in this
fleet value range represent.
This suggestion would be corroborated by the fact that
at this point last year average premium increases for the
segment were already above the market average.
Aon airline insurance market indicators 2010/11 24
US$150-500 million
The smallest segment of the airline industry has been the
most active in the insurance markets so far this year, with
48% of the total expected number of renewals placed
representing 47% of the total forecast annual lead hull and
liability premium.
The segment enjoyed fractionally better treatment from
the insurance markets than the industry average in 2009,
so it is interesting to note at this point that the 12%
average premium increase is somewhat higher than the
7% industry average.
The segment enjoyed fractionally better treatment from the
insurance markets than the industry average in 2009, so
it is interesting to note at this point that the 12% average
increase is somewhat higher than the 7% industry average.
While the exposure increases may suggest that the smallest
operations in the industry are being the quickest to react to
the perceived improvements in economic conditions, the
segment increased its AFV by more than three times the
industry average in 2009. This reflects the fact that that the
addition of a single aircraft can significantly bolster the fleet.
25 Aon airline insurance market indicators 2010/11

Sector analysis suggest that low-cost and charter airlines are benefiting
from the nascent economic recovery with leisure travellers beginning to
be encouraged back and being bolstered by business travellers that are
focusing on the bottom-line rather than extra leg-room.

sector analysis
Total Renewals Premium
2009 2010 % change Est % of 2009 2010 % change Est % of
Sector annual (US$m) (US$m) annual
Flag 19 17 -11% 29% 163.87 171.23 4% 13%
International 9 10 11% 45% 71.98 77.36 7% 39%
Low-cost 20 18 -10% 49% 89.67 96.71 8% 37%
Charter 20 18 -10% 49% 36.31 41.81 15% 34%
Regional 25 24 -4% 56% 84.04 92.38 10% 39%
Cargo 5 5 0% 42% 43.79 44.41 1% 43%
Other 2 2 0% 40% 1.27 1.62 28% 29%
Total/Average 100 94 -6% 44% 490.92 525.53 7% 23%

Fleet Value Passengers

Total % change Total % change
Sector (US$m) (m)
Flag 51,523.10 6% 228.07 7%
International 37,275.01 3% 120.89 19%
Low-cost 33,631.11 18% 213.19 17%
Charter 6,597.34 18% 15.04 15%
Regional 11,210.95 6% 59.50 15%
Cargo 17,882.98 15% - -
Other 875.05 52% - -
Total/Average 158,995.54 9% 636.80 13%

Average Liability Limit Cost Per Passenger Credit Balance

2010 % change Total % change 2010 % change
Sector (US$m) (US$) (US$m)
Flag 1,214.71 -5% 0.75 -2% 303.65 -51%
International 945.00 -12% 0.64 -10% 177.37 3%
Low-cost 952.78 -6% 0.45 -8% 274.69 26%
Charter 881.11 10% 2.78 0% 84.55 -10%
Regional 689.58 4% 1.55 -4% -369.01 3%
Cargo 705.00 -22% - - 59.82 3%
Other 550.00 0% - - - -
Total/Average 896.65 -2% 0.83 -5% 531.07 -34%
 Aon airline insurance market indicators 2010/11 26

Percentage lead hull and liability premium

change by sector
Flag
The flag carriers that have renewed so far this year have only
Charter: 15% a 4% average increase in lead hull and liability premium, well
Regional: 10%
below the 7% industry average increase. This reflects the
purchasing power that the largest and highest profile carriers
Low-cost: 8%
have when they approach the insurance markets, as well as
International: 7%
their perceived levels of safety and potential for growth.
Total/Average: 7%
Seven of the 17 flag carriers that have placed their insurance
Flag: 4%
programmes so far this year have seen the cost of their lead
Cargo: 1% hull and liability premium rise by more than 10%, mainly the
0 5 10 15 20 result of exposure changes.
Percentage %
Highlighting flag carriers’ purchasing power, the sector
represents nearly twice the amount of premium of any other
Percentage average fleet value change by sector at this point of the year with only 13% of the total expected
annual amount currently placed.
Low-cost: 18%
In terms of exposure changes, AFV is forecast to rise by 6%
Charter: 18% and passenger numbers by 7% during the course of the
Cargo: 15% 2010/11 insurance policies. While this is a relatively modest
Total/Average: 9% amount in comparison with some of the other sectors,
given the size of the fleets involved, even a 1% increase is a
Flag: 6%
considerable achievement.
Regional: 6%

International: 3%

0 5 10 15 20

Percentage %

Percentage passenger projection change by sector

International: 19%

Low-cost: 17%

Regional: 15%

Charter: 15%

Total/Average: 13%

Flag: 7%

0 5 10 15 20

Percentage %
27 Aon airline insurance market indicators 2010/11
International
International carriers have also enjoyed relatively benign
treatment from the airline insurance markets, with lead hull
and liability premium rising by 7%, the same rate as the
industry average.
The sector has received relatively homogenous treatment in
terms of insurance, with the largest increase being 16% and
the largest reduction being 8%. Again, the increases appear
to be related to exposure changes, with the sector having a
relatively good credit balance.
International carriers expect a very strong growth in the
number of passengers, 19%, without a corresponding
increase in AFV, 3%, during the course of the 2010/11 policy
period. This is something of a recovery on the projections
put in place for 2009/10 insurance policies, when passenger
numbers were forecast to decline by 5%.
International carriers tend to enjoy many of the benefits of
flag carriers in terms of their size making them able to deliver
relatively large proportions of an underwriter’s premium
targets. They are perceived to have an added advantage in
that they are more likely to be fully private enterprises and
operating with limited government intervention in many
cases. It could be argued that this creates a perception that
they are likely to be well run because they succeed or fail on
their own merits.
Low-cost
Only two of the 18 low-cost carriers that have renewed
are expecting a reduction in AFV during the course of
their 2010/11 insurance policies, which goes some way to
explaining the sector’s slightly higher than average lead hull
and liability premium change.
The exposure growth appears to represent a robust recovery
on last year and, perhaps, a return to the exponential growth
witnessed during the middle of the last decade.
Low-cost carriers are likely to be benefiting from a double
effect of economic downturn: while personal travellers
appear to be tentatively returning to aviation and nudging
up their discretionary spending on things like weekend
breaks, businesses are likely to continue to be very cautious
with travel budgets and previously premium journeys may
now be falling into the hands of the low-cost carriers.
This effect is likely to remain in place for some time,
particularly with a number of indicators suggesting that
while the economic conditions are more positive than
they were a year ago, it will be some time before calmer
economic conditions return.
Charter
The charter airline sector is enjoying a similar period as the
low-cost carriers given that many of the fundamentals of the
sector are parallel. The sector is projecting similar growth
in AFV and passenger numbers, although it differs in that
its lead hull and liability premium has grown on average by
more than twice the industry average.
While the first seven months of the year see the placement
of around 50% of the expected insurance programmes, they
only represent around a third of the total expected lead hull
and liability premium. This leaves significant scope for the
position to change during the final few months of 2010.
It is worth pointing out that the charter sector has continued
to invest in its fleet throughout the economic downturn. For
the full year 2009, while passengers were projected to fall by
5% across the sector, AFV was projected to rise by 20%, the
highest rate of increase in the industry.

Regional
Regional carriers have been one of the more active sectors
in the airline insurance market during the first few months
of the year, with nearly 40% of the total expected amount
of lead premium placed. With a projected increase of 15%,
passenger numbers are growing fractionally more quickly
than the industry average of 13%, but AFV is growing more
slowly, at 6% compared to 9% for the industry as a whole.
The passenger number growth is the result of around a
quarter of the 24 regional placements that have occurred so
far this year projecting growth of 10% or more, while only
two are projecting reductions of more than 10%.
While half of regional carriers in the sector are projecting AFV
increases of more than 10%, the sector’s two largest carriers
are projecting either very modest fleet growth or even fleet
reductions during the course of their 2010/11 insurance
programmes. Their relative weight in the sector has
suppressed the averages. This is unlikely to be the case at the
end of the year when more of the larger regional operations
have renewed.
Credit balance in the sector continues to be the lowest in the
industry, dominated by a single operation that had a loss last
year with a very high liability reserve.
Aon airline insurance market indicators 2010/11 28
Cargo
Somewhat unusually given recent history, the cargo sector
has enjoyed the best treatment from the airline insurance
markets so far this year. Lead hull premium in the sector
has only risen by 1% so far in 2010, well below the industry
average. This represents a significant turnaround on the
position reported this time last year when premium rose by
24% compared to a market average of around 17%.
The very modest premium increase is despite the sector
reporting a 15% increase in AFV forecasts, with four of the
five placements so far in 2010 suggesting that they will
increase the size of their fleets during the year, three of them
by 10% or more. This again points to a relative increase in
confidence in the global economy, given the airline cargo
sector’s pivotal role and high level of reactivity to changes.
It is an interesting change of position compared to a year
ago, when we were discussing the relatively poor perception
of cargo carriers in the insurance market. This was based
on two factors: losses at some of the larger operations over
the last few years and a negative perception of many of the
smaller carriers in the sector that carry cargo on an ad hoc
basis. Presumably given the economic challenges of the last
two years the use of ad hoc carriers has declined alongside
the falling levels of tonnage transported by air.
29 Aon airline insurance market indicators 2010/11

inclusion criteria/notes
The information featured in this report is representative
of market trends only. We regret that due to vertical or
fragmented marketing, sourcing exact percentage rate
movements and/or shifts in premiums can sometimes
prove difficult.
Our analysis is therefore representative of airline programmes
with an insured average fleet value equal to or greater
than US$150 million. Average fleet values are the average
projected value of a fleet during the entire length of an
insurance programme, rather than at a specific date.
Rate and premium movement percentages are based on
the London nett lead hull and liability terms.
Five year credit balance describes the difference between
the total value of claims and the total amount of premium
collected over five years.
Insurance cost per passenger is worked out by taking
the total cost of hull and liability premium for an
industry segment and dividing it by the total number
of expected passengers.
Insurance cost per passenger is worked out by taking
the total cost of hull and liability premium for an
industry segment and dividing it by the total number
of expected passengers.
Where airlines have replaced their programmes or have
implemented short-term policies, the full annual figures
have been used for calculation purposes on their accounts.
If placements have, through the addition or deletion of
airlines, changed, no allowance has been made in the
expiring figures.
Unless otherwise stated, all data is based on Aon
market data.
It should also be noted that for comparison purposes
all local currencies are converted to US dollars.
This review focuses on western built, non-military aircraft
and airline organisations.
Aon loss data is based on information from Aon Benfield
Aviation Reinsurance.
Loss data excludes 9/11. The loss regions are based on the
domicile of the airlines involved, rather than where the
loss occurred.
Unless otherwise stated long-term loss refers to the period
1995 to 2009.
Please note figures may differ due to rounding.
Due to the sensitive nature of the issues involved, the losses
overview features only those incidents with an incurred hull
and liability loss value of US$1 million or above.

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