Airline Insurance Market Could Make Hard Turn

The airline insurance market will remain soft through the end of this year, a brokerage reported, but increased losses could turn the market in the opposite direction during next year's renewal season, the study said.

Chicago-based Aon earlier this week issued a renewal season special report for November saying that rates fell 8 percent for hull and liability coverage.

However, the level of reduction, the report went on, is less than it was in the first half of the year, possibly a bellwether of a market turn.

“Even given the high level of capacity and the low level of losses in recent years, it seems unlikely that the market can continue in this direction,” the report said.

In a separate report, “Airline Insurance Review, Pre-renewal Season 2007,” Aon noted that over the first nine months of this year hull and liability lead premium rates have fallen 15 percent. However, during that same period exposures have increased with fleet value growing by 11 percent over the same period last year and passenger numbers up 12 percent.

Compared to 2006, 2007 has seen 80 percent more fatalities, hull losses increase around 18 percent, and liability losses nearly double. There have been 34 major losses in 2007, amounting to $421 million in hull loss and $407.6 million in liability loss, totaling more than $828 million.

Aon noted that there has not been a major loss in a long time, “but the cumulative impact of smaller incidents could mean that the market will become an increasingly unprofitable place to do business if the reductions continue.”

“It seems unlikely that the market direction during 2007 can continue into 2008, and less soft market conditions are likely as a result,” Aon said in its special report.

Copies of the report are available online at www.aon.com under publications.