Bringing the Nose Back Up

August 21, 2017

Over the last 25 years, safety improvements and falling accident and fatality numbers have quite rightly led to corresponding Aviation re/insurance rate reductions. Looking at Aviation overall, the trend has been one of steady risk and rate reduction, but, critically, on two different trajectories. Rates have fallen more steeply.

At the same time, the cost burden for Aviation, especially for General Aviation (GA), has increased.

Market indications are that there’s now only just enough in the rates to cover costs and attritional losses, not enough to cover large losses, error margin and profit.   

Rightly, credit where credit’s due for safety improvements, but to fully support a viable Aviation market, the rate trajectory’s ‘nose’ needs to be brought back up. 

Starting with the steady improvement in US Aviation accident statistics (figure 1). 

A positive risk improvement for Aviation as a whole.

For such improvement, a reduction in Aviation rates should follow, and it has. However, looking at the corresponding insured loss ratios, the indication is that rates have fallen too steeply. 

Over the period 2010 to 2015, the loss ratio of GA attritional losses increased at an annualized growth rate of 2.8%1, and is now close to 60% (figure 2).

This negative loss ratio development, mainly due to falling premium, is further aggravated by increased acquisition costs. 

With the total cost burden of GA business now running at close to 30%2, see figure 3, what’s left is insufficient to cover large losses, profit or error margin.

Which indicates that rates need to rebalance to fully support a long-term, viable market and its clients.

Have you observed other trends? We’d be very happy to discuss this topic with you. Please contact us to discuss this topic and to find out more about risk solutions from PartnerRe.

1 PartnerRe research, 2017
2 PartnerRe research, 2017

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