Airline Insurance Capacity Plentiful: Aon

Airline insurance capacity may be at its peak, according to a brokerage firm study, which found that net premium for the sector fell by 7 percent in the first eight months of this year.

Aon's Airline Insurance Market Review found that merger and consolidation activity witnessed in 2005, while somewhat abated, "has been a significant factor in the [negative]-7 percent premium erosion in the market year to-date."

The Chicago-based brokerage's report noted that last year's hurricane season in the United States failed to deliver what Aon said was an expected hardening of the market.

"Capacity remains in abundant supply," said Steven Doyle, Aon global practice manager.

Aon said the airline industry safety record and capacity levels ensured a high level of competition for programs with good loss records. Passenger numbers, the firm noted, have increased by 16 percent.

"The sustained reduction in both the frequency and severity of losses continues to present market participants with a challenge to determine the appropriate premium levels to meet the new exemplary industry safety standards," according to Steven Doyle, manager of Aon's Aviation and Aerospace Global Practice Group.

Aon's study did see individual months that pointed towards what it said was a slight firming of the market, with programs receiving the same rates rather than outright reductions.

The study found that so far this year, 12 programs with a fleet value of over $150 million, have changed lead underwriters compared to 20 changes at this point last year.

In terms of brokers, it found 10 changes, compared to 12 broker changes at this point in 2005.

With insurers seeking to diversify portfolios, Aon said aviation capacity "may be suggested to be at its peak. It seems likely that the high level of competition and the continued fall in premiums in the airline insurance market make it a less attractive place. As a result, there is not a great deal to attract new capacity."

Mr. Doyle said there were few surprises in the data--except for the fact that the level of reduction in premium came so swiftly. "Premium reductions have escalated at the end of this year," he noted.

The report said that the U.S. House of Representatives' vote to block adoption of new foreign ownership rules may hamper plans by European companies to create a stronger presence in the United States through acquisitions, which in turn will impact the expected consolidation of insurance programs.

Data in the report for the first three quarters of the year included a listing of 309 total fatalities, $357.4 million in hull losses and $188.5 million in liability losses.