Aviation industry set to absorb 2014 losses

Aviation insurance

Last year was a horror year for the aviation industry, which is on the hook for an estimated US$1.8 billion in claims, after Malaysia Airlines MH370 went missing, Malaysia Airlines MH17 was shot down over the Ukraine and AirAsia QZ8501 crashed into the Java Sea.

However, QBE Australia’s Aviation National Relationship Manager Julian Fraser expects rates to remain stable following some discounting last year.

“According to our colleagues in the London market, airline rates showed some recovery in late 2014 in reaction to losses and were expected to finish the year at prior-year levels, if not slightly increased on 2013 overall,” Fraser says.

“While the majority of insurance for flag carrier airlines is underwritten in the UK, Europe and, to a lesser extent, North America, there is significant local capacity for regional airlines within Australasia, with QBE being very active in this space.”

Allianz Aviation Regional Manager Michael Dalton says competition in the market is so strong the losses are not likely to make a difference to rates.

In the last 20 years that Dalton has been underwriting aviation, the space has gone from almost three specialised underwriting agencies to four to five serious players competing for bids in what is still a small market today.

“They all have top-line targets and expense ratio pressures that they have to satisfy, but certainly the problems here are the same as we see in our offices in Singapore and London,” Dalton says. “The competition ends up being not just between the underwriters, but the brokers as well.”

He recalls the September 11 crashes as a small upward blip on the liability premiums, which kept falling from there.

“I struggle to envisage what sort of event would be a market-turning event.”