Aon: Airline Renewals In For 'Interesting Year'

This will be an interesting year for airline insurance renewals, with impacts from a reduction in fleet sizes, a distressed economy and improved carrier safety records, Aon brokerage said.

In a report on the airline insurance market, Chicago-based Aon reported that lead hull and liability premiums rose 5 percent during the month of December with almost all end-of-year renewals in, but that translates into an overall rate increase of 16 percent compared to 2007.

Capacity at the current level of pricing is significantly lower than the total capacity in the marketplace, said Aon. That appetite varies based on safety and loss record.

Aon said 2008 "looks set to deliver a second calendar year without profit for a number of underwriters, [which] will have a significant impact on price in 2009."

This year's insurance negotiating process will be "more challenging" than last year, the broker continued, "irrespective of what type of operation is being placed."

Rate reductions, Aon said, will only be available "in exceptional circumstances."

"The fact that the economic climate may mean there are a number of organizations renewing with reduced fleets and the fact that 2008 appears to have been relatively safe may provide an interesting dynamic for negotiations in 2009," Aon said.

Average lead hull and liability premium was around $5.3 million per renewal in 2008, close to 40 percent higher than the $3.9 million in 2007. The cost is below the five-year average, said Aon, but the renewal years 2002 through 2004 were heavily influenced by insurance increases post-9/11.

Some good news, according to the report, was found in the number of fatalities that have averaged 901 between 1995 and 2007 (the figure excludes 9/11). For 2008, the number stood at 384.

All the evidence points to a continued hardening of the insurance market in this sector, Aon said.

December saw a total of 55 renewals, in sharp contrast to five expected in January, and February is expected to be quiet with only one renewal scheduled that month. It will not be until April when the industry gets to see a better picture of the direction of pricing, the broker said.

"The likelihood, however, is that the current hard market conditions will continue for the whole year, given the loss that many airline underwriters will have endured during the last two years," Aon said.