The commercial aviation insurance line is unlikely to end 2007 in the black, making it the first unprofitable season in seven years as claims exceed premium by $70 million, according to an insurance broker's report.
Chicago-based Aon said in its December "Airline Insurance Market News" that premium totals for 2007 are expected to come in at around $1.46 billion, well below premium totals of $1.69 billion in 2006 and $2.04 billion in 2005.
While premiums have dropped by close to $600 million since 2005, what is more alarming is that total claims will come in at $1.53 billion, Aon said.
"This suggests that 2007 will be the first unprofitable year for the [airline] underwriting community since 2000," the report said.
For the past three months, the aviation insurance industry has seen a premium price reduction of 10 percent for lead airline hull and liability insurance. The anticipated loss in premium is based on the assumption that December will end at minus-10 percent premium decline, said the broker.
However, Aon said it does not expect a hard market reversal in aviation because the past years have been profitable for insurers. One year's loss of profit may produce some firming, but not withdrawals of carriers from the market.
Insurers will be helped by "significant profits" in the excess war and terrorism liability risk markets. Aon said while the market has declined rapidly over the last 12 months, there have been no claims in the past six years.
Aon also noted that insurers have made significant investments in attracting and retaining staff in this market "and are unlikely to make a snap decision to pull back from the market."
"The market fluctuation will create winners as well as losers in 2007, and the numbers are very rough at this stage," said Aon, but if the trend continues into next year, insurers may begin to pull back from those markets that are unprofitable.
The full report is available at www.aon.com.
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