Reversing a five-year trend, airline lead hull and liability premiums on average increased by 7 percent last year, according to Aon insurance brokerage's London office.

Aon's "Airline Insurance Market Outlook 2009" said the uptick followed an 11 percent decline in 2007, representing an 18 percent upward swing in the last two years. The trend is likely to continue, the firm said.

It reported total lead hull and liability premium rose from $1.51 billion in 2007 to $1.6 billion in 2008, while insurers are estimated to have paid out $1.45 billion in claims last year.

Aon projected that many underwriters are likely to be in a overall loss position for 2008, and that as a result of a variety of factors including fixed and reinsurance costs, they will be under further pressure in 2009 as capital providers scrutinize their current levels of investment.

Among the key report findings are:

o In 2008, 63 percent of airlines received an increase in their lead hull and liability premium, compared to 28 percent in 2007.

o Fatalities related to airline incidents in 2008 were at their lowest since 2004 and the third lowest since 1995.

o Total hull and liability claims were fractionally below the long-term average and around 25 percent below the 2007 total.

o Average fleet values in Asia became the largest in the world in 2008, while North American fleet values shrunk.

Simon Knechtli, Aon Global UK Aviation & Aerospace Practice Leader, commented in a statement that, "The market appears to have passed the low ebb it reached in 2007 when total lead hull and liability premium fell to around $1.5 billion, down from over $2 billion two years before."

Mr. Knechtli added, "Underwriters are now driving to sustain the premium increases in order to ensure profitability. The challenge for airlines in 2009 is going to be ensuring efficient and cost-effective insurance and risk management programs against a backdrop of falling consumer confidence and revenues."

The report also said that total incurred losses for 2008 stand at $934 million, well below the $1.48 billion reported for 2007 and fractionally down from the $1 billion 1995-2007 average.

Cargo carriers, the report found, contributed 16 percent of the lead hull and liability premium in 2008, slightly higher than the 15 percent of claims that the sector represented. In 2007, the sector contributed 14 percent of the premium, but was only responsible for 2 percent of the claims.

While the largest 20 airlines by average fleet value contributed 45 percent of the total annual of lead hull and liability premium during 2008, removing them from the data would mean that the lead hull and liability premium increase would have been 9 percent in 2008, as opposed to 7 percent, suggesting that they may not have received significantly preferential treatment, Aon said.

Special Reports /

Hull And Liability Rates Rise For Airlines, Aon Finds

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