NU Online News Service, March 29, 2:58 p.m.EDT

It's official. 2011 was one of the best claims years for theaviation-insurance market, and that translates into soft-marketconditions continuing into 2012, according to a report released byAon Risk Solutions.

In the report, “Airline Insurance; Market Outlook 2012; The riskremains,” Simon Knechtli, head of aviation, Aon Risk Solutions,a division of the Chicago-based insurance broker Aon, writes thatinsurers continue to deploy capital into the aviation market,translating into continuing soft conditions.

However, the insurers “are battling to balance deploying greaterappetite against further market softening,” he says.

He goes on to say that “a small minority” has scaled downaviation underwriting and is waiting for conditions more favorableto carriers, but he adds that the majority are still pursuingmarket share in a very competitive market.

The results of 2011 over 2010 show average premium fell 3percent while airline-fleet values grew by 8 percent.

Total lead hull and liability premium was $1.82 billion, a dropfrom 2010's $1.88 billion.

The final loss figure for 2011, excluding minor losses, is $522million, a significant reduction from 2010's $1.59 billion.Factoring in minor losses, total loss was $1.13 billion compared to$2.1 billion for the previous year.

Insurance capacity is expected to remain healthy in 2012, thereport declares, and that should mitigate any potential upwardpressure from losses during the year. However, Aon warns thatprices have probably reached their low point “and the remaininguninvolved capacity has a low appetite for current pricing.”

While 2011 was a profitable year for underwriters, when lookingover the past five years, aviation has not been kind to insurers.Historically, loss levels have hovered around $2 billion, soinsurers have faced a number of years of unprofitableunderwriting.

The insurance industry is also dealing with the realities ofmergers and acquisitions within the airline industry, as well asairlines going out of business, which reduces the overall premiumpool. Aon estimates that around $232 million of lead hull andliability premium has “disappeared from the insurance market during2011.”

However, the low number of claims and fatalities in 2011 is apositive for carriers in the industry, with claims down 67 percentand total fatalities worldwide at 175, well below the average of623 over a 15 year period.

“The airline industry will rightly broadcast the very positive2011 as the result of the high levels of investment in technology,quality and safety and industry standards,” says the Aonreport.

Those results, suggests Knechtli, mean most airlines can atleast count on something not increasing during 2012.

“Airlines can enjoy their insurance premiums being the one areaof fixed costs which remains soft and encouragingly negotiable,”says Knechtli.

However, Peter Schmitz, chief executive officer, Aviation, AonRisk Solutions, notes, “A single year with phenomenally low levelof claims does not mean that the next year will be the same,because the level of risk does not change overnight.”