Aon Says Airline Insurers Face A Bad Year

NU Online News Service, Sept. 14, 3:00 p.m. EDT

The airline industry insurers market will probably not make a profit for the third year in a row despite an average 17 percent increase in prices between January and July this year, Aon said.

The Chicago-based insurance broker in its "Airline Insurance Market Indicators 2009/10" report said airlines with a hardening market, increased claims and a drop in passenger volume are experiencing a very difficult year.

Magnus Allan, Aon Global U.K. Aviation & Aerospace analyst, said in a statement, "While some of the industry data is starting to look more positive, given the well-documented decline in the number of business travelers, passenger number forecasts could be even more gloomy by the end of the year once more of the industry's major players have placed their 2009/10 insurance programs.

"The tension between the insurance markets needing to increase premiums and an industry that is suffering from the effects of the global economic downturn continues," he concluded.

In part, the tension is magnified by the high value of loss the industry has experienced this year, making it the most expensive first-six-month loss since 1995.

Total claims are up 15 percent above the long-term average for a full year, said the report, with 409 aviation-related fatalities so far this year, compared to 298 for the same period last year.

However, there have been only 20 losses (incidents with an incurred hull and liability loss value of $1 million or more) compared to the long-term average of 42.

Further increases in premium pricing, Aon noted, could be held in check by the "level of latent capacity" in the airline insurance market and increased competition as other insurers step in to take advantage of rising prices.

"There's no getting around it, 2009 has been a terrible year so far for the aviation industry," the report said.

Despite the positive economic news of recovery, the report said "it will be a long time before the industry gets back into positive [earnings] territory."

For the airlines, passenger numbers continue to drop while they face rising fuel prices spurred on by the improving economy, Aon noted.

The result could be a number of major mergers pushed by bankruptcies and government intervention, the report said.

Aon said average fleet values are expected to rise 1 percent, but passenger numbers are set to decline by 9 percent.

The full 48-page report is available at Aon's Aviation Insight Web page.