The airline industry saw its lowest levels of losses in history during 2003, said Aon in its report on the aviation insurance market.
The low losses have resulted in an average reduction of 18% in insurance rates.
But Aon warned that terrorism continues to be a threat to the sector, with the continuing risk to air carriers, civil aircraft and airports remaining at a higher level than the public may be aware.
Capacity levels were able to meet demand in the sector, despite some insurers stopping writing aviation business during 2003.
Aon said overall insurance premium volume among the top 182 airlines fell to $2.65bn, marginally above the widely accepted minimum premium level of $2.5bn considered necessary to maintain a viable aviation insurance market, said Aon.
Aon aviation division chairman Doug Peterson, said: “Despite the reducing levels of premium, the future direction of the aviation insurance market remains uncertain.
“With the ever-present potential for further losses, insurers pulling out of the market and the growing impact of terrorism, the aviation insurance market is in a precarious position.
“It is unlikely that insurers will maintain the 2003 premium rate reductions that we saw throughout 2004.
Justin Priestley, a director within Aon's Counter Terrorism and Political Risk team, added: “The sector continues to represent a very real target for terrorist groups who recognise the globally economic importance of the airline industry.
“While we have seen insurance premiums for airlines fall, this should not be seen as a reduction in the threat that major airlines face from terrorist networks worldwide.
