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October aviation increases ‘lower than hoped for’: JLT

The rapid downward march of airline rates was halted in September, with carriers forced to pay more for their cover, according to JLT's monthly Plane Talking report.

However, rate increases in the October renewals concluded to date are some way short of the levels targeted by underwriters.

"At the time of going to print, market sources were reporting [that] renewal increases for some October renewals were lower than insurers had hoped for," the report said, adding that the extreme differentiation in the market means this should not be taken as a general trend.

Sources told The Insurance Insider that lead aviation underwriters had been looking to secure aggregate rate increases of up to around 30 percent.

JLT said that in September the "relentless" 15-20 percent declines of the first half of the year were replaced by a 7 percent upward movement, which it said was "a significant swing, particularly in an environment of surplus capacity".

Liability rates were up by around 3 percent and hull rates by around 10 percent, with premium growth outpacing these numbers owing to exposure growth of roughly 8 percent.

As previously reported, JLT stressed that the market was characterised by pronounced differentiation.

"The variation between renewals is large, as it seems to be also from the subjective talk on those airlines currently being negotiated," the report said.

"It seems therefore that one prerequisite for a longer-term market change is in place: selectivity. Underwriters are underwriting again and the differentiating factors affecting each risk will have a much greater impact in this environment. Exposure reductions are going to affect rates, exposure growth is no longer for free and loss history will be heavily scrutinised for each risk."

Rate changes for carriers in the post-loss environment varied from 1 percent to 68 percent, although some airlines had already placed their cover at a rate reduction.

China Airlines, which has a fleet value of more than $5bn, has chosen to extend its policy period from 15 October into December.

JLT also noted that the MH17 liability reserve had been set at a surprisingly low $200mn, confirming a story previously published by The Insurance Insider. This brought the broker's estimated non-attritional loss total for the sector in the year-to-date to $923mn, with $749mn for liability losses and $174mn for hull.

Sources have told this publication that excess capacity and the behaviour of some carriers means that the aggregate rate movement in Q4 is likely to be in the range of +10 to 20 percent, with the lower half of that range more probable.

Berkshire Hathaway-backed managing general agency Global Aerospace doubled its line on Air France and has shown a selective willingness to meaningfully increase its lines elsewhere.

It is also understood that XL has been looking to replace other leaders on all-risk placements, although to date it has not secured any new leadership positions. Sources did say, however, that it had also been growing its book at the expense of carriers that were taking a more adversarial stance on pricing.

Sources added that Allianz and AIG - the most hardline of the market's leaders - have already walked away from renewal business they believed to be inadequately priced.

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