Aviation premiums take off

Aviation insurance prices will rise and the insurance market will harden further through the end of 2008 and into 2009, according to the latest Airline Insurance Insight report from Willis.

It says lead premiums in November increased 16%, while overall program premiums are increasing at an even faster rate.

The report claimed insurers are achieving rate increases despite low loss levels and over capacity, which would normally lead to rate reductions. Insurers are controlling the deployment of capacity as part of their strategy to manage the market cycle, the report said. And capital providers are increasing their demands for better returns against the backdrop of the global financial crisis. The report said international insurers are taking a harder attitude toward pricing than those in the US and are attempting to achieve higher percentage increases in premium.

“As we approach the end of the year, all signs point to a continuing hardening of the market,” said Steve Doyle, executive director of Willis Aviation. “The lack of any significant losses recently would appear not to have tempered a change in underwriter attitudes. Insurers undoubtedly feel that they have gained momentum.”

The report noted that the total premium generated in 2008 to date, including known December renewals, has been $1,233m (£789m), an increase of 9%, or $101m over 2007, despite the fact that growth has been slowed by the absence of carriers that have ceased operations in 2008. In a previous report, Willis said continuing firming of rates could mean that gross premium for 2008 will exceed $2bn, driven by major renewal activity in December. By comparison, gross premium for 2007 was $1.8bn.

November second busiest

The market saw 18 renewals in November, including some of the world’s largest programs. Despite only having four more renewals than October, due to the size of the programs, November generated nearly four times the premium than the previous month. November is now the third busiest month for the number of renewals – after December and July – but ranks second only to December in terms of premium volume.

Among the 18 November renewals were five pure cargo carrier programs, which, because of a number of major losses in this sector over the past 12 months, saw premiums spike 40% in November, much higher than passenger airlines.

December busiest

December is the busiest month of the year for renewals, both in terms of the number of renewals and premium volume. Last year, December renewals generated about 50% of the year’s premium, and that percentage is expected to increase in 2008, amplifying the effect of the hardening market and setting the benchmark for renewals in 2009.

The 55 risks scheduled to renew in December include many of the world’s larger carriers. At this time, known December renewals total $350m in premium, up 8% over last year, while Average Fleet Value (AFV) is up 7% and passenger numbers are up 4%. However, this does not include many of the renewals of major North American carriers, the majority of whom renew in the second half of the month and last year accounted for 43% of December’s premium. As more information becomes available, exposure percentage change figures (AFV and passenger counts) are expected to be reduced, reflecting the impact of the economic downturn.

For the year, claims activity remains low, the report said. Airline claims for 2008 currently total $1,289m, including a pro rata figure of $390m with respect to attritional losses. At the same point in 2007, claims totalled US$1,797m.