Battle For The Skies Among Jet Insurers

Corporate and private jet insurance prices are diving as newly arriving underwriters dogfight for business, market participants said.

In interviews they related that carriers have been flocking to the sector despite softening prices, drawn by factors that include an expanding number of potential customers and policies with five-figure premiums.

Conrad Geeslin, an agent in Falcon Aviation's Austin, Texas office, noted that since aviation insurance is basically unregulated, companies can charge as much or a little as they want.

After 9/11, he said, prices underwent a radical upward spike. Over the past two years, however, brokers and insurers say market prices have fallen considerably.

Still, the business is lucrative. Mr. Geeslin noted a $30,000-per-year premium among recent writings to insure a $2.2 million Citation jet flown by an owner-pilot with a $10 million liability limit.

For a $1.9 million Westwind flown by a crew of two professional pilots, the yearly premium is $19,500 for a $10 million liability limit and $1.8 million in hull coverage, Mr. Geeslin said.

Professionally schooled pilots are viewed by underwriters as low risk, while for owner-pilots, insurers require a lot of training with requirements that they undergo yearly education on the aircraft, he said.

According to Mr. Geeslin, more and more corporations are buying airplanes and oftentimes “the CEO wants to fly it himself. Private jet sellers have been so busy that Gulfstream, Cessna and Eclipse all are back-ordered for their products, he said.

Will Lovett, North American chief underwriting officer for American International Group Aviation, said the market for general aviation planes has been “fantastic,” with sales increasing for five years in a row.

He noted statistics from the General Aviation Manufacturers Association released a few months ago showing that in the first half of this year there were 1,883 shipments of general aviation units, representing a 1.7 percent increase over 2006, with billings soaring 11.7 percent to $9.8 billion.

The growing number of customers for expensive aircraft has also seen additional insurers going offering protection.

o At the end of 2005, W.R. Berkley Corp. announced formation of Berkley Aviation to focus on general and specialty aviation and airline carrier risks.

o In June of 2006, Starr Aviation Agency and Chubb Corp. said they had an agreement for Chubb to provide hull and liability cover for Starr's general aviation clients.

o A month later, Allianz Aviation Managers opened for business.

o This march, Inter-Aero said it would be a market for all aspects of general aviation risks underwriting on behalf of Arch Insurance Company.

o And in May, Travelers announced it was launching Travelers Aviation to target corporate and business aircraft.

While these newer entrants can offer comparable policy wordings and terms, the limits they are putting out are lower than longer-term market heavyweights, according to Tracy Toro and Peter Schmitz, the managing directors of Aon's national aviation practice.

Traditional markets such as American International Group, Global Aerospace and U.S. Aviation Insurance Group offer the biggest limits available, while most of the newer entrants can only offer up to $300 million, they said.

The added competition has put continuing downward pressure on rates, experts say.

Jeff Bauer, president of NationAir in Chicago, said the brokerage has seen “decreases anywhere from 20-to-40 percent on corporate accounts,” and a significant increase in capacity.

AIG, as one of the big three insurers in the business, does not sound threatened.

The new entrants “are not a market for the heavy iron we insure,” said Mr. Lovett, noting that his company can cover liability of $500 million and hull values as high as $65 million.

Lately, he noted the market has not had “a lot of disciplined underwriting taking place.”

Ms. Toro at Aon said, however, that despite aggressive quotes from underwriters, “we have seen some markets walk away if the reduction is too great.”

While Ms. Toro said the reductions in the 20-to-40 percent cited by others are possible, “those reductions were dependent upon current rating structure, good loss experience and major competition from new markets eager to gain market share. Since the market has been soft in general, basic renewals have received reductions of more realistic levels.”

Ms. Toro guessed that the soft market might continue through 2008. “At some point,” she added, “the market will stabilize even in absence of a major loss or losses to the industry. Attrition losses to the market will begin to impact the low rating structures.”

At this point, however, Mr. Geeslin said the loss ratio for the sector is “pretty good,” with crashes happening infrequently.

Current statistics limited to jet accidents in the general aviation market are not readily available, but from an anecdotal standpoint, Mr. Geeslin said his impression is “the safety record has been fairly good when you consider how many are in the air.”

“The corporate aircraft sector has one of the best safety records out there. From an underwriting standpoint it's attractive,” said Mr. Schmitz at Aon.

Mr. Lovett said safety records have been helped by a variety of new technologies that have become available, including Traffic Collision Avoidance System, Terrain Alerting Avoidance Warning System as well as Global Positioning System downlink and weather radar.

Even with all the competition, market participants said there has not been much in the way of new products.

Mr. Geeslin noted some companies will tweak offerings to include baggage and medical coverage, but “as a general rule I haven't seen much of any innovation,” he said, adding that policies have gotten broader to also provide cover for spare parts in a hanger and reimbursement for expenses incurred while a plane is being repaired.

“It's a very traditional line of coverage. There's not much else out there we can do,” noted Mr. Lovett.

Some policies may contain language limiting flights to the United States and Mexico, but Mr. Geeslin said in the current battle for business, where one carrier will say no to flights outside the Americas, another will jump in to say “We'll give you worldwide coverage.”

Brokers said that perhaps the hardest business to place involves older aircraft. A plane “older than 25 years could be a concern,” said Mr. Bauer at NationAir.

Clients for general aviation insurance are high-net-worth and come from all walks of life, said Mr. Bauer.

But according to Ms. Toro, the business does not provide much chance to rub shoulders with the rich a famous.

When it comes to arranging a policy, “even if a private jet is owned by a movie star, [he or she] would not get involved” in securing insurance coverage. “Their company and risk manager would handle it,” she said. “We don't get to see George Clooney,” she said.