Airline Market Insurance Price Hardening Continues

NU Online News Service, Dec. 14, 3:55 p.m. EST

The airline insurance market continues its swing to hard prices with a 24 percent increase in rates for 26 airline renewals during the month of December, according to a report from Aon.

The Chicago-based insurance broker's Airline Insurance Market News for December said lead hull and liability premium rose on average 24 percent, primarily based on the losses suffered by one airline. Taking that one airline carrier out, rates rose 9 percent for the industry.

According to HighlineData, a Summit Business Media Company, which also owns National Underwriter, Berkshire Hathaway Insurance Group, owned by Warren Buffett, is the lead underwriter in this sector with 14 percent of the market. Allianz Insurance is second with 13 percent, followed by American International Group at a little more than 12 percent, and XL American Group is fourth at 11.6 percent.

The Aon assessment of rate trends is based on preliminary data for 26 of the expected 65 December renewals in place, the brokerage said.

For the six months running July through December of this year, rates rose an average 22 percent, the broker said.

The expectation is that the hardening will continue into the January 2010 renewals, Aon said.

Total lead hull and liability premium for 2009 amounts to $1.9 billion. It is an improvement over 2008's $1.6 billion, but falls short of the 2004 high of $2.6 billion.

However, the premium collected is 19 percent below the $2.26 billion in claims filed for the year to date, Aon noted.

Save for a "significant event in the industry," prices are expected to continue to increase at their current double-digit rate.

"Given the expected shortfall between premium and claims in 2009, the pressure will be on underwriters to ensure that 2010 is not a fourth consecutive year of losses on their books of business," Aon said.

Aon noted that there were 58 losses so far this year, compared to an average of 68 between 1995 and 2008.

There were two significant losses during the year from Air France and Colgan Air. Without those losses, total claims would be around $1.24 billion, "a reasonable amount below the average claims of $1.44 billion between 1995 and 2008." That would have given the industry "a fairly healthy buffer between premium," said Aon.

The 2009 results, Aon continued, could be reduced in 2010, reversing the hard market pattern.

Aon added that "fundamentally, the airline sector still presents a good level of risk."

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