Interview with Reiner Siebert,managing director of Albatros(Lufthansa Group) Reiner Siebert, managing director of Albatros (Lufthansa Group), is perfectly placed to give us his perception of the insurance aviation market today.
What is your assessment of the aviation insurance market today?
Reiner Siebert: 2013 was a year without a large number of major losses in the aviation insurance sector. Nevertheless, 2013 was still not a wonderful year for insurers in financial terms. On the one hand there was the Asiana Airlines Boeing 777 which crashed in San Francisco on 6 July with three fatalities. There was also the fact that premiums have been under pressure for a number of years now. Due to both of these factors, despite the small number of really big claims in 2013 it was certainly not a vintage year for aviation insurers.The downward pressure on premiums continued in 2014. In fact premiums fell by 16% to 19%. This was partly offset by growth of 7% in the size of the market. Nevertheless, insurers have continued to come under considerable pressure. The market has also been characterised by excess capacity, which has exerted further downward pressure on premiums. And then there was Malaysia Airlines flight 370. That aircraft was en route from Kuala Lumpur to Beijing with 239 people on board when it suddenly disappeared from the radar. Despite a tremendous search effort, it still has not been found to this day. It goes without saying that this represents a major loss for the insurers, but it is not yet completely clear whether it is an all-risk claim or comes under Hull War. Above all it has been a shock to the market, but the impact on the level of premiums has been very small. Soon afterwards, flight MH317, also a Malaysia Airlines flight, was brought down over Ukraine. All the passengers died. This disaster does fall within the Hull War market. The total liability claim ultimately turned out to be much higher than the reserves that were initially set aside.
Will this lead to premium increases? Perhaps it will. I am afraid that the current low evel of premiums will be unsustainable in future. It is true that some insurers have extended their existing contracts under identical terms and conditions. It goes without saying that other airlines will also be looking to extend their existing contracts with the same premiums, terms and conditions. The question is whether they will manage to do this. I am expecting to see a slight rise in premiums across the market in 2015, along with limited growth.
Position of the broker How do you see the position of the broker evolving?
Reiner Siebert: Their position is not straightforward. Clients pay them to find the best possible deal, so that brokers who are able to offer added value have little to worry about. At the same time, there are two developments taking place that tend to work against the brokers: on the one hand there are more and more large brokers looking for ways of cutting osts, which exerts downward pressure on the service that they offer. At the same time brokers have to take a more long-term view: can the market continue to sustain losses on this
scale? A low premium is attractive today, but in the longer term it is probably unsustainable. I am also expecting a number of players to leave the market, reducing the amount of excess capacity.