Willis Sees Aviation Insurance Hardening Into 2009

Willis Group Holdings said it expects aviation insurance prices to rise and the market to harden further through the end of 2008 into 2009, according to a report from its global aviation practice.

The latest Airline Insurance Insight report from Willis, headquartered in London, indicates that lead premiums in November increased 16 percent, while overall program premiums are increasing at an even faster rate.

“As we approach the end of the year, all signs point to a continuing hardening of the market,” Steve Doyle, executive director of Willis Aviation, said in a statement. “The lack of any significant losses recently would appear not to have tempered a change in underwriter attitudes. Insurers undoubtedly feel that they have gained momentum.”

The market saw 18 renewals in November, including some of the world's largest programs. Despite having four more renewals than October, November generated nearly four times the premium due to the size of the programs.

November is now the third busiest month in terms of renewals–after December and July–but ranks second to December in terms of premium volume.

Among the 18 renewals in November were five pure cargo carrier programs. Because of a number of major losses in this sector over the past 12 months premiums spiked up 40 percent, much higher than passenger airlines.

The report notes insurers are seeking and achieving rate increases in an environment of relatively benign loss levels and overcapacity, which would normally be expected to favor rate reductions.

The principle factors leading to the hardening market, the report said, are insurers controlling the deployment of capacity as part of their strategy to manage the market cycle and capital providers increasing their demands for better returns against the backdrop of the global financial crisis.

The report observed that international insurers are taking a harder attitude toward pricing than those in the U.S. and are attempting to achieve higher percentage increases in premium.

The report noted that the total premium generated in 2008, including known December renewals, is $1.23 billion, an increase of 9 percent, or $101 million, over 2007, despite the fact that growth slowed because some carriers ceased operations in 2008.

In a previous report, Willis said gross premium for 2008 could exceed $2 billion if premiums continue to firm through December. By comparison, gross premium last year was $1.83 billion.

December is the busiest month for aviation renewals, both in renewal numbers and premium volume. Last year, December renewals generated about 50 percent of the year's premium, and that percentage is expected to increase in 2008, amplifying the effect of the hardening market and setting the benchmark for renewals in 2009.

The 55 risks scheduled to renew in December include many of the world's larger carriers, Willis said. At this time, known December renewals total $350 million in premium, up 8 percent over last year, while average fleet value (AFV) is up 7 percent and passenger numbers are up 4 percent.

However, this does not include many renewals of major North American carriers, the majority of whom renew in the second half of the month and last year accounted for 43 percent of December's premium. As more information becomes available, exposure percentage change figures (AFV and passenger counts) are expected to be reduced, reflecting the impact of the economic downturn.

For the year, claims activity remained low, the report said. Airline claims currently total $1.29 billion, including a pro rata figure of $390 million with respect to attritional losses. Claims totaled $1.8 billion at this point last year.