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Global Economic News
It is, once again, good to be able to report some positive global news.
The July US employment figures revealed that the economy had lost 247,000 jobs against an expected figure of 320,000. This unexpected news saw US stock indices rise sharply, with markets settling around 50% higher than their low point, which was reached in March. A further drop in the rate of job losses occurred in August where 216,000 losses were recorded but September figures at 263,000 were a disappointment.
Also in the US, home sales in June were up 3.6% to their highest level in two years.
Early August saw the welcome news that Japan had moved out of recession, with its economy growing by 0.9% in the second quarter after four consecutive quarters of contraction. There were also surprise August results from Germany and France, which both reported 0.3% Q2 growth. The majority of other European countries were, however, still suffering negative growth. The UK economy, for instance, was down 0.8% for the quarter.
Non-Airline Market News
Non-airline markets are nowhere near as volatile as airline markets, not suffering the sometimes dramatic peaks and troughs of rating and claims. Renewals analyzed so far indicate that, in original currency, airport renewals have seen average reductions of approximately 3%, service providers down by around 8%, whilst manufacturers have attracted an average increase of approximately 2%. Overall sector premiums are down by an estimated 2%.
Aviation Industry News
The Brit Insurance takeover approach to Chaucer was finally rejected and subsequently withdrawn by Brit. Pamplona Capital Management is continuing to build a stake in Chaucer.
Ace saw its Q2 net income drop 28% due to a decline in net written premiums and net investment losses. However, on an earnings per share basis, the results still exceeded analyst’s predictions.
Kiln have announced the opening of a Paris office, which will initially write airline hull and liability business.
Amlin announced a record after-tax profit of £167mn for the first half-year, up 54.5% against H1 2008.
Munich Re revealed a Q2 profit up by 12%, although the first half-year was down overall from €1.4bn to €1.123bn.
Swiss Re shares fell after it reported an overall loss for the first half-year rather than the expected profit.
Aircraft orders did begin to pick up during the third quarter. Boeing announced, among others, an order from Copa Airlines of Panama for thirteen B737-800s and Ethiopian Airlines have ordered five B777-200LRs. The Ethiopian order also includes twelve Airbus A350-900s. However, a recent report by Flight International focused on the rate at which older, less efficient jets are being laid-up. The report put the number of idle jets at 3,000 – up 30% compared with the same point in 2008. This represents around 13% of the global total for Western-built jets.
Q2 results for the major US carriers gave cause for concern. Delta/Northwest, American, Continental and United all reported a drop in revenues and passenger numbers and between them recorded negative results in the region of US$1bn. The US budget operators such as Southwest, JetBlue, Airtran and Alaska fared a little better, managing to remain profitable but on a much reduced margin.
IATA have reviewed their June financial forecast. They now expect passenger yields to drop by 12% for 2009 as opposed to the previously predicted 7% and cargo yields to drop by 15% as opposed to 11%.
Significant Losses
The crash of the Caspian Airlines Tu-154M fifteen minutes after takeoff from Tehran on 15 July is unlikely to result in a substantial claim, but the loss of all 153 passengers and 15 crew adds to the death toll of what is already a higher than average year for fatalities.
Other significant losses since our last newsletter are:
- A Rossiya A320-200 received substantial damage from a tail strike while landing at St. Petersburg on 7 July.
- A Southwest Airlines Boeing 737-300 suffered a rapid decompression when it lost part of its upper fuselage whilst in flight on 13 July.
- An American Airlines Boeing 767-300ER was possibly damaged beyond economic repair on 16 July when its nose landing gear unexpectedly retracted during ground maintenance at Fort Worth.
- On 21 July an Aeromexico Boeing 737-800 received significant damage when its nose landing gear collapsed during push-back at San Francisco.
- A Transaero Boeing 737-400 suffered a tail strike on landing at Moscow on 23 July.
- An Aria Air Il-62M overran landing at Mashhad on 24 July. The aircraft hit some approach lights, killing 13 crew and 3 of the 153 passengers on board.
- A Merpati Nusantara Airlines DHC-6-300 crashed en route from Jayapura to Oksibil, Indonesia, on 2 August, killing both crew and all 14 passengers on board.
- On 4 August a Bangkok Airways ATR-72-200 overran its landing at Koh Samui in poor weather. The aircraft was probably damaged beyond repair when it hit the old control tower, killing the pilot.
- A DHC-6-300 belonging to the Airlines of PNG crashed en route from Port Moresby to the Kodoka Trail, Papua New Guinea, on 11 August, killing all 11 passengers and both crew.
- On 22 August an Aeroflot Don Boeing 737-400 suffered a tail strike on landing at Chelyabinsk.
- A Balkan Holidays Airbus A320-200 was substantially damaged by a tail strike during takeoff from Verona on 1 September.
- An Air India Boeing 747-400 was damaged by an engine fire during push back from Mumbai on 4 September.
- On 14 September a Contact Air Fokker 100 was seriously damaged during a wheels-up landing at Stuttgart.
- A BAe Jetsream 41 of SA Airlink was destroyed when it crashed shortly after takeoff from Durban on 24 September. Thankfully there was no loss of life.
In our last issue we also highlighted the recent spate of serious rotor wing accidents. This issue, we must mention the tragic crash in New York on 15 August when a single engine Piper PA32 flying from Teterboro Airport in New Jersey collided with a Eurocopter AS-350 helicopter carrying five Italian tourists over the Hudson River between Manhattan and Hoboken. Some sources have estimated that liability claims arising from this accident could reach US$30 million.
Market Personnel News
Since our last issue, we have seen significant staff movements both in the broking and underwriting communities.
Phil Stafford and David Wilkie have left Aon to join Colemont.
Jonathan Palmer-Brown (ex-Deputy Chairman), Martin Trumper, Bill Smith, Steve Turner, John Cruse, Sean Kelley and Paul Coombes have all left Aon to join JLT. They will be joined by Giles Wilkinson, ex-Chairman of Willis Aviation who left the company earlier this year and Chris G. Clark, formerly a Deputy Chairman of Wills Aviation.
David Reed and Mark Walters have left Marsh Aviation to join Tysers and Ken Coombes has left Marsh to join UIB.
Jean-Claude Gèze has left Allianz to take up the position of Head of Aviation at QBE France.
Graham Spencer-Brown has left Allianz to join CV Starr.
Richard Power has left C V Starr to take up the position of senior underwriter and head of airline underwriting at Catlin.
Mark Stanley has left Global to join Catlin.
Outlook
As we move to the all-important fourth quarter, insurers will likely still try to increase rates.
Worthy of note is that at the current hull and liability incurred loss reserve circa USD1.89 billion, this is the worst year since records began (excluding 9/11) and is likely to result in many insurers taking a loss for the third successive year. Any further significant losses will likely push insurers to accelerate the level of increases being sought; however, the current levels of non-deployed capacity could have a leveling effect. Price increases could encourage more underwriters back into participating, providing an element of stabilization on rates.
Clearly, these are challenging times for all. We will continue to monitor the market closely and report of developments.
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