Aerospace Market Headed Toward Softening

The aerospace insurance market hardened slightly during 2006, but the final quarter suggests there may be a softening over the next year in this traditionally stable market, according to an insurance broker's report.

Chicago-based Aon's findings were contained in its Aerospace Insurance Market Review of 2006.

“The aerospace insurance market continues to plot a divergent course to the airline insurance market, said Steven Doyle, spokesperson for Aon's aviation team, in a statement.

Mr. Doyle said, “Rather than underwriters imposing blanket rate increases, they are increasingly making technical risk assessments to judge the aerospace sectors and individual companies on their own merits. This is improving the position for businesses across the industry.”

Aon defines this industry as airframe, engine and component manufacturers; airports and air traffic control organizations; caterers, retailers and ground handlers; refuel, repair and service operations; security companies and financiers; other service providers.

The report said that aerospace companies are unlikely to witness the significant declines in premium of 17 percent enjoyed by airlines. However, they have still benefited from the same factors of plentiful capacity and few claims, thus receiving average increases of just 3 percent.

The key findings of the review are:

o There was a fairly even split in how the insurance markets treated the regions, with Africa and the Middle East witnessing average increases of around 10 percent; Europe and the Americas receiving only low-single-digit increases of around 1-to-3 percent; and Asia increasing 6 percent.

o The market continues to reward scale, with operations that only buy liability limits of more than $2 billion enjoying an average lead premium reduction during 2006.

o The manufacturing sector, which dominates the aerospace industry, continued to suffer from the effect of increased U.S. casualty claims in other sectors. It saw premiums rise by the highest rate among the three industry sectors (manufacturers 5 percent, service providers 4 percent, and airports 2 percent), Aon said.

Evidence from the last quarter of 2006, when average rate increases began to slow, suggests the market will soften for all regions during 2007.

This may even extend into 2008, Aon continued, unless there are significant losses in the aviation industry or a contraction of capacity as a result of underwriters merging or reducing their activity in the aerospace market.

The report and other aviation publications can be obtained by e-mailing aviation.aerospace@aon.co.uk.