Aviation insurers were thrown for a loss in 2007, according to a brokerage firm's report, and a London consulting firm said underwriters will need to increase prices for 2008 as a result.
Chicago-based insurance broker Aon said in its January market view report that for 2007, the industry saw $1.7 billion in losses and collected $1.5 billion. It reported that lead premium reductions on good accounts slowed to negative 10 percent in the final quarter of last year, "having been significantly softer during the first half of the year."
The industry is still sound, the report said, and if 2008 sees fewer losses, it predicted the insurance market will be a good place for underwriters who want to maintain a diverse portfolio.
Aon said the first quarter is usually a quiet one for renewals and insurers are likely to use that period to reevaluate their position.
Last year had the third highest total of insurance losses since 1996, but fatalities are down significantly, Aon said, with 607 for the year.
The market is also showing a notable shift in renewal peaks with November overtaking July as the busiest renewal period.
A London-based consulting firm, Ascend, said it estimates that airlines incurred losses of around $1.8 billion in 2007, up $400 million from 2006.
Of the five most serious accidents last year, the crash of a TAM Airbus A320 in Sao Paulo, Brazil, in July and a Kenya Airways B737 near Douala, Cameroon, in May, are expected to cost airline insurers almost $700 million.
With a 10 percent decline in premium pricing for the year, premium income for airline hull and legal liability for 2007 came to about $1.5 billion, $300 million less than the claims.
Aviation premium income has fallen by more than half since 2001 after six consecutive years of low accident numbers, Ascend said.
"The leap in the cost of claims last year should be the jolt needed to bring some sense to the market," said Paul Hayes, director of Ascend, in a statement.
"Premiums have been falling since 2001. This has created an unsustainable situation where not only is the industry failing to bring in enough money to cover the cost of claims during a year, but nothing is being put aside as cover for a major catastrophe," said Mr. Hayes
He added, "It is no surprise that we are beginning to see some insurers walk away from the airline market and most reducing the capacity they are willing to use for airline business. It all points to a market that has bottomed out: rates must increase, the only question is how sharp the rise will be."
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