Aerospace Insurance Market Down For 4th Year In A Row

NU Online News Service, June 1, 2:39 p.m. EDT

Premium for the aerospace insurance market is down for the fourth year in a row as capacity remains high, but buyers are being warned that the soft market direction won’t last, says insurance broker Aon.

In a report issued today, Chicago-based Aon says lead premium for 2010-2011 insurance policies for the sector dropped $23 million to $774 million. This marks a 17 percent drop over the last four years, says Aon.

The report titled “Aerospace Insurance Market Outlook 2011” says underwriters continue to pump capacity into the sector because while it can produce significant claims, frequency is quite low.

However, Aon says the “soft markets will ultimately come to an end” and everyone involved in the placement of insurance needs to understand one another’s position so price changes “are manageable” and “are aligned to any changes” presented by the risk.

The report notes that the airport sector has gone through the fifth year of reduction with lead premium reductions ranging from 2-7 percent. The reason is that foot traffic is expected to drop anywhere from 1-7 percent during the 2010-2011 period, Aon says.

For manufacturers, premiums remained stable pressured by the decrease in profitability due to the recession and the high cost of claims against manufacturers following an aviation incident.

Finally, service providers, made up significantly of vendors that refuel the planes, saw their lead premium fall on average by 5 percent during the 2010-2011 program period.

Aon notes the sector has been consistent over the past four periods, falling on average by 6 percent for 2007-2008, 2008-2009 and 2009-2010.

Revenues for 2011-2012 are forecast to be “positive,” an improvement from what was reported in 2009 and 2010. However, the natural-catastrophe events worldwide “are likely to have a significant impact” on rates, Aon says.