Airline insurance unprofitable, says Aon

An report by Aon has stated the airline insurance market was broadly unprofitable in 2007.

It blamed a high level of hull claims valued at around $1.7bn (£861mn) added with the lowest amounts of lead hull and liability premium since 2000.

As a result, Aon's Airline Insurance Market Review of 2007 stated there is an expectation the negotiating processes will be tougher in 2008.

The review brings together market data from the previous year and extrapolates its possible effect on the market for the year ahead.

It also found the total recorded lead hull and liability premium for 2007 was $1.5bn, which was a reduction of 30% since 2005. The total incurred claims, including hull, liability and an estimate for attritional losses, amounted to $1.7bn while North American fleet values, at $1.92bn, fell below those of Europe and Asia, both at $1.93bn, for the first time in 2007.

Meanwhile, North American passenger numbers, however, were still higher than the other two major aviation regions while the proportion of passengers travelling with flag carriers has fallen from 66% in 2005 to 48% in 2007.

Having started the year with average premium reductions of around 20%, the airline insurance market became gradually less soft as the year progressed with underwriters recognising the probability that the value of hull claims would outweigh the total lead hull and liability premium.

Doug Peterson, Aon Aviation and Aerospace group practice leader, said: "After four years of soft markets, it looks like 2007 may well have seen the cost of airline insurance reach something of an equilibrium."

“Despite the relatively high number of hull losses in 2007, there were fewer fatalities compared to the average over the last decade. Capacity continues to be high, but it seems unlikely that providers will continue to offer the high level of reductions witnessed over the last couple of years.

"As a result, 2008 looks set to be a fascinating year in the airline insurance markets," he concluded.