Aon: Aviation Rates Softening

Aviation insurance rates are softening, showing signs of moderation after hardening last year, according to a report released by Aon Corp.

The Chicago-based insurance broker's assessment for July renewals said based on 16 of 35 expected renewals for the month, "the airline insurance market is softening."

Aon said current data indicates average fleet value and passenger numbers have increased in line with the year-to-date trend. Despite this growth, premiums remained flat for the month, "suggesting in real terms the cost of insurance is actually falling in many cases," the broker noted.

Fleet value was up 12 percent for July and has grown by 7 percent for the year so far. Passenger movement showed a 9 percent increase for the month and 11 percent total for the year-to-date.

While premium was flat for the month of July, overall premium has risen by 5 percent for the first six months of the year.

July is considered the second most active month for renewals, representing 17 percent of renewals in 2009 and 13 percent of total annual lead hull and liability premium.

However, Aon cautioned that despite July's prominence in the renewal cycle, it does not necessarily indicate premium trend for the full year.

Concerning loss trends, current figures show a dramatic turnaround from last year. So far this year, losses stand at $458 million compared to $1.3 billion at the same time last year. Including minor losses, overall loss is estimated to be $733 million compared to $1.59 billion last year.

Aon noted that last year's number includes the June loss of an Air France jet that greatly affected the loss figures.

The year is 10 percent below the 1996-2009 average, and if the trend continues, total claims could come in at around $1.5 billion, significantly below the $2.3 billion for last year.

The industry segment is expected to collect $2 billion in lead hull and liability premium for the year, improving the underwriting performance.

However, the losses the business suffered over the past three years means an unlikely return to soft market conditions and insurers are expected to hold prices for some time, Aon said.

Aon also noted that "it only takes a relatively small number of incidents in the airline industry for the loss levels to rise significantly."