2011-05-31

By Deborah Ritchie

The aerospace sector weathered the global financial crisis relatively well, but confidence is still in short supply, with passenger and revenue forecasts still relatively conservative, according to Aon Risk Solutions, which has published these findings in its latest Aerospace Insurance Market Outlook report.

The sector is now in its fifth consecutive year of falling insurance premium prices, with preliminary data for 2011/12 renewals pointing to a continuation of the trend. The ongoing soft market is being driven by a variety of factors, with changing insurance strategies, falling exposure as a result of the global economic downturn and the industry’s evolving risk profile, all playing a role.

Airport operators enjoyed the best results from the insurance markets, with lead premiums falling on average by 7%. Service providers experienced an average of 5% reduction in prices, an impressive level of consistency after the 6% average reduction reported for 2007/08, 2008/09, 2009/10. Lead premium in the manufacturer sector was stable once again for 2010/11, reflecting the reduction in turnover caused by the global economic downturn, coupled with the overall perception of risk in the sector.

Overall, four of the five regions experienced lead premium prices fall on average, with only the Middle East going against the trend, although as the second smallest region in the world from an aerospace point of view, it is subject to the influence from changes at the region’s major operations.

“The insurance programmes placed for the aerospace sector so far in 2011 suggest a fifth consecutive year of the soft market,” observes Danny Green, head of Aon Risk Solutions’ aerospace team in London.

“While the long term declines in premium levels would suggest that insurers will begin raising premium at some point in order to maintain profitability, there are several reasons why this may not happen in the short term. Over capacity attracted by the sector’s relatively good loss history, as well as reductions in exposure, or the actual volume of risks being insured, driven by the global economic conditions have meant that there is lower exposure to be covered. The long term improvements in safety that are being made by organisations across the sector are also a major factor. As a result, there will continue to be pressure on insurance prices.”

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