Airline insurance capacity may be at its peak, according to abrokerage firm study, which found that net premium for the sectorfell by 7 percent in the first eight months of this year.

Aon's Airline Insurance Market Review found that merger andconsolidation activity witnessed in 2005, while somewhat abated,"has been a significant factor in the [negative]-7 percent premiumerosion in the market year to-date."

The Chicago-based brokerage's report noted that last year'shurricane season in the United States failed to deliver what Aonsaid was an expected hardening of the market.

"Capacity remains in abundant supply," said Steven Doyle, Aonglobal practice manager.

Aon said the airline industry safety record and capacity levelsensured a high level of competition for programs with good lossrecords. Passenger numbers, the firm noted, have increased by 16percent.

"The sustained reduction in both the frequency and severity oflosses continues to present market participants with a challenge todetermine the appropriate premium levels to meet the new exemplaryindustry safety standards," according to Steven Doyle, manager ofAon's Aviation and Aerospace Global Practice Group.

Aon's study did see individual months that pointed towards whatit said was a slight firming of the market, with programs receivingthe same rates rather than outright reductions.

The study found that so far this year, 12 programs with a fleetvalue of over $150 million, have changed lead underwriters comparedto 20 changes at this point last year.

In terms of brokers, it found 10 changes, compared to 12 brokerchanges at this point in 2005.

With insurers seeking to diversify portfolios, Aon said aviationcapacity "may be suggested to be at its peak. It seems likely thatthe high level of competition and the continued fall in premiums inthe airline insurance market make it a less attractive place. As aresult, there is not a great deal to attract new capacity."

Mr. Doyle said there were few surprises in the data--except forthe fact that the level of reduction in premium came so swiftly."Premium reductions have escalated at the end of this year," henoted.

The report said that the U.S. House of Representatives' vote toblock adoption of new foreign ownership rules may hamper plans byEuropean companies to create a stronger presence in the UnitedStates through acquisitions, which in turn will impact the expectedconsolidation of insurance programs.

Data in the report for the first three quarters of the yearincluded a listing of 309 total fatalities, $357.4 million in hulllosses and $188.5 million in liability losses.