Airline insurance premiums continue to fall as new capacity enters the global market

Aon’s 2007 Airline Insurance Market Review highlights accelerated premium reductions

LONDON, 1 March 2007 — The average lead premium in the airline insurance market has fallen at an accelerated rate over the last quarter of 2006 and it could still have further to fall according to the findings of Aon’s Airline Insurance Market Review of 2006*. These premium reductions have resulted from additional capacity entering the market through a number of new aviation underwriters and because the loss record for the airline industry has continued to be impressive.

The key findings of the review are:

  • the low-cost sector continues to thrive, with an average 6% reduction in lead hull and liability premium despite fleet growth of 15% and carrying 22% more passengers;
  • the market continues to reward economies of scale, with operations with a fleet value of more than US$5 billion receiving an average premium reduction of 22%;
  • competition has continued to put pressure on the excess third party liability market, which has delivered US$6 billion of profit to participants since 2001, despite there being no claims.

The high level of capacity in the market is expected to continue into 2008 and the anticipated continued decrease in lead premiums could potentially prompt some capacity to exit the market. This may well be brought forward should any consolidation among underwriters occur. Meanwhile, the cumulative loss record for 2006 is slightly lower than 2005. While the small number of hull losses in 2005 was very impressive very impressive, the number of fatalities was the highest since 2000. There have been fewer fatalities in 2006 with a notable reduction in losses at the smaller end of the market.

Steven Doyle, Aon Global — Aviation, says: “Prior to October, the market had looked to be on course to deliver another 7% reduction on the total hull and liability market figures for 2005, continuing a trend that had been in place since 2003. The introduction of new capacity and the excellent industry loss record, however, reduced the hull and liability market by 17% compared to 2005. As a result, the airline insurance market dropped below the US$2 billion level for the first time since 2000. It seems likely that the benign market conditions, at least from an insurance buyer’s point of view, will continue until at least next October, unless there is a significant loss or major consolidation in the underwriting community.”

About Aon Consulting

Aon Consulting is a leading human capital consultancy, helping organisations of every size to attract and keep the employees they need. We advise on all aspects of employment, including health-related insurance and risk; employee compensation and pensions; human resource strategy planning; job design and change management; and staff assessment and legal issues. Aon Consulting is a division of Aon, one of the UK’s largest insurance brokers and providers of risk management services and a major force in reinsurance and the UK human capital consulting market. Aon Consulting Limited is authorised and regulated by the Financial Services Authority.

About Aon

Aon Corporation is a leading provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. There are 43,000 employees working in Aon’s 500 offices in more than 120 countries. Backed by broad resources, industry knowledge and technical expertise, Aon professionals help a wide range of clients develop effective risk management and workforce productivity solutions.