The airline industry saw lead hull and liability insurance premiums increased 5 percent during the first six months of this year, Aon insurance brokerage reported.
In its "Airline Insurance Market Indicators Autumn 2008″ report, the Chicago-based broker's aviation unit in London said the airline insurance market is hardening for the first time in five years even as fuel prices for carriers increase.
Insurers are taking a "tough stance" on renewals so far this year, Aon said, a position that is expected to continue for the last two months of this year when the bulk of renewals take place.
As further evidence of hardening, Aon noted that between January and July of last year 72 percent of airline renewals received reductions. During the same period this year, only 34 percent of renewals received reductions.
"As we suggested at the beginning of the year, the airline insurance market has become a much tougher place for airlines in 2008," Doug Peterson, Aon aviation and aerospace practice leader, said in a statement.
"The challenge for the markets is that they are hardening at a point when the aviation industry as a whole faces a number of difficult economic challenges such as high fuel prices and wavering consumer confidence. We expect the final quarter of 2008 to present some interesting dynamics."
Among some of the reports observations:
o Losses and fatalities are well below the long-term average to date, but some high-profile incidents will have an impact on market sentiment.
o Asian fleet growth continues to outpace the market, although premium growth is only fractionally above the industry average.
o Hull and liability premium in the smaller segments is rising more quickly than the larger segments.
o Cargo operators are still experiencing reductions so far this year. However, this is based on the larger global carriers that have renewed to date. Smaller operators may still experience a harder market come renewal at the end of the year.
Aon noted that first-quarter average lead premium increases stood at 6 percent, while second-quarter came in at an 11 percent increase. Third-quarter renewals slowed.
Total lead hull and liability premium for 2008 is expected to fall between $1.49 billion and $1.6 billion for the airline insurance market. Total lead hull and liability premium stood at $1.5 billion in 2007.
The report also noted that current cost of claims so far in 2008 stands at $565 million, outweighing the $430 million premium total collected so far this year, only a quarter of the premium renewals. Aon said the loss rate is actually better than average at this point in the year, but a single loss could change the position.
The report is online at http://aviationinsight.typepad.com/aviation_insight/.
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