NU Online News Service

A series of recent losses for the airline industry may mean theaviation insurance line will be hard pressed to see a profit in2010 should the loss trajectory continue, according to a reportfrom Aon Corp.

In the Chicago-based insurance broker's "Airline InsuranceMarket News" for August 2010, Aon Analytics said the 5 percentaverage rate increase on lead hull and liability premium thatinsurers obtained for July renewals made the airline insurancemarket appear calmer than it is.

Eight airline carriers, a third of the renewals, experiencedincreases of more than 10 percent, the report said. The airlines'increases came from increased exposure with "significant growth ineither average fleet value or passenger number forecasts for the2010-2011 insurance programs.

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

However, losses in June and July "bring 2010 perilously close toa fourth consecutive year with limited returns for manyunderwriters," the report warned.

Current loss figures, excluding minor losses, stand at $959million to date, compared to $1.34 billion last year for the sameperiod. 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 ratescontinue to rise at 5 percent for the rest of the year on lead hulland liability, the premium collected should be $2.02 billion, Aonsaid. After fixed and reinsurance costs are accounted for, "itseems that there are unlikely to be significant returns forunderwriters in 2010."

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

But market direction is difficult to predict over the next fewmonths, the report continued. Everyone in the sector "should bracethemselves for a challenging period of negotiations, and airlineswill need to work closely with their brokers and present themselvesto the markets as a risk that underwriters want to support in orderto attract the best deals."

Aon noted the airline industry has suffered three major lossessince June.

On June 10, a warehouse belonging to Saudi Arabian Airlinessuffered a massive fire. The resulting damage and loss of spareparts is valued in excess of $350 million. There were noinjuries.

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

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

Just today, a high-profile air accident occurred when a planecarrying Alaska's former U.S. Republican Senator Ted Stevenscrashed in southern Alaska near Dillingham, killing the senator andat least four others. Reports say that former NASA administratorSean O'Keefe was also on the plane.

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

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

The plane, a DeHavilland DHC-3T, is a high wing, single engineairplane 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 thatfrom a hull perspective, the incident would not register. Theincident is likely to produce "a significant liability claim, butit is impossible to put a figure on it at this stage."