INVESTMENT IN SAFETY LONG TERM GAINS FOR AIRLINES IASS 2018 Eduardo Dueri | Managing Director JLT Aerospace Latin America & Caribbean Global Aerospace Consulting Services MAJOR AIRLINE LOSSES 3 YEAR MARKET POSITION GLOBAL AIRLINE PREMIUM AND CLAIMS AIRLINE LOSSES - 2017 $2,000 Loss Date Operator Aircraft Type Fatalities $1,800 Insurers continue to lose money. 03/01/17 Aeroflot Airlines A321-211 - 16/01/17 ACT Airlines B747-400F 39 $1,600 28/01/17 AerCaribe B737-400 - 14/03/17 BahamasAir ATR-72-600 - $1,400 28/03/17 Peruvian Airlines B737-300 - 31/05/17 Sriwijaya Air B737-300 - $1,200 03/07/17 AirAsia X A330-300 - 18/07/17 Tri-MG Airlines B737-301F - $1,000 03/08/17 Wings Air ATR72-500 - 03/08/17 Lion Air B737-900ER - USD USD Millions $800 30/09/17 Air France A380-800 - 29/11/17 Singapore Airlines 777-200 - 08/12/17 Qatar Airways A321-231 - $600 13/12/17 West Wind Aviation ATR42-320 - Based on airline incidents involving loss of life, total loss, CTL or a significant Hull claim. $400 Source: Information collated from publicly available online sources. $200 Few major airline losses - zero passenger $0 fatalities from commercial jet flights in 2017. 2015 2016 2017 Premium Claims 3 Year Average Premium 3 Year Average Claims However attritional losses were frequent and costly and continue to erode profits. Figures are on calendar year basis, excludes Hull War. Source: FlightGlobal data. JLT SPECIALTY LIMITED ALL COMMENTS AND INFORMATION BASED ON JLT SPECIALTY’S ASSESSMENT OF THE MARKET. 2 MAJOR AIRLINE LOSSES 2018 YEAR TO DATE AIRLINE LOSSES - 2018 AIRLINE FATAL ACCIDENTS VS. FATALITIES 450 16 Loss Date Operator Aircraft Type Fatalities 05/01/18 Sunwing Airlines B737-800 - 400 14 13/01/18 Pegasus Airlines B737-800 - 350 11/02/18 Saratov Airlines AN-148-100B 71 12 18/02/18 Iran Aseman Airlines ATR 72-212 66 12/03/18 US-Bangla Airlines DHC-8-Q400 51 300 17/04/18 Southwest Airlines B737-700 1 10 29/04/18 Lion Air B737-800 - 250 18/05/18 Global Air B737-200 112 8 11/06/18 Lufthansa A340-300 - 200 14/06/18 LinkPNG DHC-8-Q200 - 6 Numberof Fatalities 31/07/18 Aeroméxico Connect ERJ-190AR - 150 Numberof Fatal Accidents 10/08/18 Horizon Air DHC-8-400 1 4 01/09/18 UTAir B737-800 - 100 50 2 Based on airline incidents involving loss of life, and or are a total loss, CTL or are estimated will lead to a significant hull claim (includes hull war) (excludes GA type aircraft). Source: Information collated from publicly available online sources. 0 - 2014 2015 2016 2017 2018 YTD Six fatal airline losses to date, which account No. of Fatalities No. of Fatal accidents for some 302 fatalities *Figures are on a calendar year basis and are shown only as a guide. They include commercially operated jet or turboprop aircraft of more than 14 passenger seats or their cargo equivalent. Source: JLT and FlightGlobal data. JLT SPECIALTY LIMITED ALL COMMENTS AND INFORMATION BASED ON JLT SPECIALTY’S ASSESSMENT OF THE MARKET. 3 HULL & LIABILITY MARKET TREND GLOBAL AIRLINE PREMIUM AND RATES - CURRENT POSITION Global Airline Premium and Rates $2,000 0.25 Rates had been on a long-term Premium Rates downwards trend and market $1,800 conditions were soft $1,600 0.2 $1,400 ) $1,200 0.15 USDm However, 2017 saw a flattening $1,000 out of rates and a push to Rates Premium Premium ( $800 0.1 increase premiums $600 $400 0.05 Aircraft values and liability awards continue to rise. $200 2018 is now seeing an uptick in this position and the market $- 0 2012 2013 2014 2015 2016 2017 2018 (H1) Forecast remains challenging Source: Information is based on JLT/ Flightglobal data and is for indication purposes only. JLT SPECIALTY LIMITED ALL COMMENTS AND INFORMATION BASED ON JLT SPECIALTY’S ASSESSMENT OF THE MARKET. 4 HULL & LIABILITY MARKET TREND A THREE-TIER MARKET - AVERAGE RATE CHANGE Despite limited major renewal activity, year to date analysis shows rates trending upwards over 2017. 25.0% 2017 (Annual) 2018 (H1) 20.0% Subject to ‘as before’ rates Achieving ‘as 15.0% or modest before’ rates rate or small rate increases. 10.0% reductions with exposure growth. 5.0% 0.0% Weighted Average Weighted Average Rate Change (%) -5.0% Subject to rate increases. -10.0% -15.0% Tier A Tier B Tier C Excludes anomalies. Source: Information is based on a combination of JLT and Flightglobal data and market knowledge and is for indication purposes only. JLT SPECIALTY LIMITED ALL COMMENTS AND INFORMATION BASED ON JLT SPECIALTY’S ASSESSMENT OF THE MARKET. 5 How Important is Investment in Safety? More aircraft take-off today, with more passengers than ever before Top* Aviation Markets Departures v/s Average Occupancy Identifying ‘Top’ Aviation Markets 35.0 140 30.0 120 114 110 25.0 107 100 103 100 96 93 91 20.0 80 • Across the metrics of total number of departures, and the total numbers of passengers, 29 key markets can be 15.0 29.7 30.4 60 28.5 identified as ‘Top’ aviation markets. 26.4 26.8 27.5 25.2 26.0 • These markets accounted for 90% of the 10.0 40 global passengers carried and 85% of the global departure points in 2017 5.0 20 • In alphabetical order, these markets are: Australia, Brazil, Canada, Colombia, France, Germany, Hong Kong, India, Indonesia, 0.0 0 Ireland, Italy, Japan, Korea Republic, 2010 2011 2012 2013 2014 2015 2016 2017 Malaysia, Mexico, Netherlands, Philippines, Russia, and Saudi Arabia, Singapore, Spain, Number of Departures by Registered Carriers (Mn) (LHS) Switzerland, Thailand, Turkey, UAE, UK, Average Number of Passengers per Departing Aircraft (RHS) USA, and Vietnam JLT SPECIALTY LIMITED | AEROSPACE 6 SOURCES: WORLD BANK, JLT AEROSPACE ANALYTICS Financial Benefits of Safety Investments are Visible Loss Ratios continue to slide down. Claims per Dollar Premium (USD) in Major Aviation Markets (De-facto Industry Loss Ratio) As a result of better aircraft, and robust investments into safety, the reduction in insurance premium rates has always been followed closely by reducing claims. 2.41 0.97 0.93 0.94 0.81 0.73 0.68 0.68 0.62 0.59 0.58 0.53 0.56 0.52 0.47 0.55 0.56 0.51 0.50 0.48 0.48 0.52 0.44 0.41 0.36 0.21 0.14 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 JLT SPECIALTY LIMITED | AEROSPACE 7 SOURCES: AXCO, JLT AEROSPACE ANALYTICS Hidden Cost of Accidents and Incidents Direct Costs (Tip of Iceberg) Indirect Costs (4X to 36X Direct Cost) • Loss of profit • Aircraft availability • Non-company employees at the site • External experts and investigators • Employee overtime • Supervisor’s time working on the accident • Lost productivity • Cost of new hire and training • Increased insurance excess • Increased insurance premiums • Loss of spare parts inventory • Legal fees • Government citations • Government operating restrictions • Loss of brand value and corporate reputation JLT SPECIALTY LIMITED | AEROSPACE 8 Moving Beyond Insurance An Aviation Safety Management System will have multiple business benefits • Better safety culture • Better health and safety in the workplace • Improved safety in operational • Better teamwork practices and safety environment culture • Better compliance results • Reduced lost time due to workplace • Fewer accidents/incidents accidents and absenteeism • Improved controls and • Reduced employee turnover documentation Investment in Aviation • Ability to reach higher product Safety • Better reputation among consumers standards Management and media • Better quality control • Higher sales volumes • Well rounded and comprehensive • More trust with investors productivity • Better stability • Better ability to meet challenges (for • Better long term decision making example: high volume traffic season) • Better long term planning ability • Higher business reputation, resulting in more business (net worth of an airline can decrease by as much as 25% after an accident) • Reduced costs of equipment, legal fees, damage claims, fines, payroll, and others • Lower insurance premiums • Reduced worker’s compensation costs (companies have observed up to 92% fall in their workers’ compensation costs over a decade, after implementing a comprehensive safety management system) JLT SPECIALTY LIMITED | AEROSPACE 9 CONTACT INFORMATION Eduardo Dueri Managing Director, JLT Aerospace Latin America +571 600 4000 249 [email protected] Ayush Malpani Assistant Manager, Strategic Research, Aerospace +91 022 4274 3032 [email protected] JLT Specialty Limited The St Botolph Building 138 Houndsditch London EC3A 7AW Tel: +44 (0)20 7528 4444 www.jlt.com Lloyd’s Broker. Authorised and regulated by the Financial Conduct Authority. This marketing literature is compiled for the benefit of clients and prospective clients of JLT Specialty Limited (“JLT”). It is not legal advice and is intended only to highlight general issues relating to its subject matter; it does not necessarily deal with every aspect of the topic. Views and opinions expressed in this document are those of JLT unless specifically stated otherwise. Whilst every effort has been made to ensure the accuracy of the content of this document, no JLT entity accepts any responsibility for any error, or omission or deficiency. If you intend to take any action or make any decision on the basis of the content of this document, you should first seek specific professional advice. The information contained within this document may not be reproduced and nothing herein shall be construed as conferring to you by implication or otherwise any licence or right to use any JLT intellectual property. If you are interested in utilising the services of JLT you may be required by/under your local regulatory regime to utilise the services of a local insurance intermediary in your territory to export insurance and (re)insurance to us unless you have an exemption and should take advice in this regard.