Plane Talking -  October 2011

Executive Summary

In Turbulent Times

The airline renewal results to date in 2011 continue the predicted trend of rate softening, however the effect on premium is being largely offset by growing exposures.

With the combined airline hull and liability premium remaining at a similar level to 2010 perhaps the key question should be whether this represents the market's premium floor - have we reached the bottom of the cycle?

With an absence of any failed placements or a withdrawal of capacity (indeed it appears quite the contrary), perhaps this might suggest that we are yet to reach the bottom. Maybe the apparent premium equilibrium is more the result of skilful underwriting balanced alongside responsible competitive behaviour?

It is however undeniable that from a simple technical pricing perspective, the current premium volumes are unable to provide a stable foundation and fall short of being able to satisfy requirements of the various stakeholders over the longer term.

As evidenced by Mr Sethsson's "Lead Lines" this month, other sectors of aviation are being similarly squeezed, choking off the flexibility offered by cross-subsidy between aviation business classes. Reinsurers have historically enjoyed a more stable pricing environment and with the backdrop of the benign loss experience over recent years, they are facing a growing pressure to "cut some slack" but at the same time wrestling with the need to maintain their businesses. Should some fail to recognise the pressing needs of their clients (the insurers); they are likely to face a fundamental shift in buyers' attitudes that will ultimately be to their detriment.

Outside of the usual round of broking and underwriting staff, the perfect storm continues to develop, awaiting an external influence or sharp deterioration in loss experience to cause this to break. It seems that the period ahead will become increasingly difficult.

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