NU Online News Service

A series of recent losses for the airline industry may mean the aviation insurance line will be hard pressed to see a profit in 2010 should the loss trajectory continue, according to a report from Aon Corp.

In the Chicago-based insurance broker's "Airline Insurance Market News" for August 2010, Aon Analytics said the 5 percent average rate increase on lead hull and liability premium that insurers obtained for July renewals made the airline insurance market appear calmer than it is.

Eight airline carriers, a third of the renewals, experienced increases of more than 10 percent, the report said. The airlines' increases came from increased exposure with "significant growth in either average fleet value or passenger number forecasts for the 2010-2011 insurance programs.

"Airlines are becoming more confident about the prospects of an industry recovery," the report said.

However, losses in June and July "bring 2010 perilously close to a fourth consecutive year with limited returns for many underwriters," the report warned.

Current loss figures, excluding minor losses, stand at $959 million to date, compared to $1.34 billion last year for the same period. Including an estimate for minor losses, the figure jumps to $1.28 billion, compared to $1.66 billion in 2009.

If current conditions in the marketplace persist, and rates continue to rise at 5 percent for the rest of the year on lead hull and liability, the premium collected should be $2.02 billion, Aon said. After fixed and reinsurance costs are accounted for, "it seems that there are unlikely to be significant returns for underwriters in 2010."

Capacity remains abundant, and with a severe hurricane season forecast, insurers may want to keep their capital in place to maintain diversification, the report noted.

But market direction is difficult to predict over the next few months, the report continued. Everyone in the sector "should brace themselves for a challenging period of negotiations, and airlines will need to work closely with their brokers and present themselves to the markets as a risk that underwriters want to support in order to attract the best deals."

Aon noted the airline industry has suffered three major losses since June.

On June 10, a warehouse belonging to Saudi Arabian Airlines suffered a massive fire. The resulting damage and loss of spare parts is valued in excess of $350 million. There were no injuries.

On July 27, at King Khaled International Airport in Riyadh Saudi Arabia, a Lufthansa Cargo plane was destroyed by fire after a hard landing. Value of the plane is estimated at $32 million.

In Pakistan, an Airbus 321 belonging to Pakistan's Airblue crashed on July 28 in bad weather. All 146 passengers and six crew members died in the crash. The plane is valued at around $38 million.

Just today, a high-profile air accident occurred when a plane carrying Alaska's former U.S. Republican Senator Ted Stevens crashed in southern Alaska near Dillingham, killing the senator and at least four others. Reports say that former NASA administrator Sean O'Keefe was also on the plane.

A total of nine people were on-board the plane, according to reports, but there has been no confirmation of the number of survivors.

AccuWeather issued a statement saying that weather conditions at the time may have led to icing on the wings.

The plane, a DeHavilland DHC-3T, is a high wing, single engine airplane that floats can be attached to for landing on the water. An internet search found versions of the plane for sale for around $1 million.

In an e-mail, Aon Risk Solutions Aviation practice said that from a hull perspective, the incident would not register. The incident is likely to produce "a significant liability claim, but it is impossible to put a figure on it at this stage."

Special Reports /

Aviation Insurers May Be Hard Pressed for Profitable 2010

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