Heathrow Crash Won’t Raise Aviation Rates Says Lloyd’s

January 25, 2008

The recent “incident” at London’s Heathrow Airport (a British Airways Boeing 777 lost power just before landing and nearly crashed injuring several passengers) is not going to cause any significant rise in aviation premiums.

According to a bulletin on the Lloyd’s web site (www.lloyds.com), “passenger aircraft accidents are at their lowest levels since 1963 and there has been a 20 percent fall in aviation passenger fatalities. According to the Aircraft Crashes Record Office’s annual report, there were 136 worldwide accidents in 2007, 28 lower than 2006 and the smallest number for 44 years.”

Beginning in 2002 major western airlines undertook to modernize their fleets, “thereby filtering newer aircraft into the secondary airlines market,” said Lloyd’s. “Investment in the airport infrastructure across the emerging economies has also increased safety levels.”

Aviation insurance rates have been falling for the past five years. In addition “over capacity in the market has added further pressure.” As a result Lloyd’s said “many leading aviation insurers, including a number at Lloyd’s, have reduced their capacity in this sector.”

Chris Wood, Aviation Underwriter at Lloyd’s managing agent Chaucer, however, noted that the removal of some capacity has seen the slide in prices start to halt. “There remains a lot of capacity in the market and as such rates are not increasing,” he explained. “There are a few geographical areas where there are particular loss concerns so there has been a small increase of rates in these.

“In recent years leading underwriters have reduced the amount of capacity they allocate to the airline sector and it has seen rates firm a little. However, there remains enough capacity for the risks to be placed and the hope is that rates will start to increase.”

He added that the Heathrow crash probably wouldn’t have any material effect on the market; however it might “well make underwriters think about the pricing of the business they write.”

In a recent trading update from Amlin, competition in the sector is described as high, and they have reduced their client list as a result. “The Amlin airline portfolio has been reduced to a core number of clients. It now accounts for approximately 1 percent of gross premium income”.

Amlin also said it believes that the “airline insurance market as a whole made a loss for 2007, despite a lack of major airline disasters, and this should increase pressure on our competitors to raise future rates to more appropriate risk adjusted levels.”

Aon’s aviation market report for the end of 2007, also indicated that “the airline market is set to make a loss for the 2007 year of account and that the market will have to wait until the April renewals – when a number of the major airlines place their coverage for 2008/9 – for any real indication of an upturn in rates.”

Source: Lloyd’s

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