The high level of hull and liability claims, coupled with falling premium levels could mean some intense negotiations over airline premiums in 2008, according to a report released by Aon.
The Chicago-based insurance broker said that lead hull and liability claims were at $1.7 billion, close to the lowest since 2000 when coverage reached $1.5 billion. The numbers mean that the airline insurance market was broadly unprofitable in 2007, Aon said.
As a result, the firm predicted the negotiating process is likely to be tougher in 2008.
The report, "Aon's Airline Insurance Market Review of 2007," found:
o Total recorded lead hull and liability premium for 2007 was $1.5 billion, a reduction of 30 percent since 2005.
o Total incurred claims, including hull, liability and an estimate for attritional losses, amounted to $1.7 billion.
o North American fleet values, at $192 billion, fell below those of Europe and Asia, both at $193 billion, for the first time in 2007.
North American passenger numbers, however, were still higher than the other two major aviation regions, and the proportion of passengers traveling with flag carriers has fallen from 66 percent in 2005 to 48 percent in 2007.
Starting the year with average premium reductions of around 20 percent, the airline insurance market became gradually less soft as the year progressed with underwriters recognizing the probability that the value of hull claims would outweigh the total lead hull and liability premium, Aon 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," said Doug Peterson, Aon aviation and aerospace group practice leader.
He added, "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."
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