June losses put pressure on airline rates to take flight
2009 is on course to be the most expensive year for the aviation insurance market in history despite having five months yet to go.
June saw both the Air France and Yemenia losses and warnings predict that the current losses are such that they swill smash the industry average for 1996-2008 with the exception of 2001.
Broker Aon has issued its mid-term report on the sector which has found that losses are already in excess of 11% higher than the full year average and if the rest of the year following the average trends for those since 1996 (of $621 million of losses between July and December) it is likely that claims will be in excess of $2.2 billion, 60% higher then the long term average annual figure of $1.4 billion.
Underwriters say that the two losses in June will put down a marker for premium pricing for the year and well into 2010 given that pressure was already growing on underwriters to push up rates.
Aon said the price of lead hull and liability premium in the airline insurance market plummeted in 2006 and 2007, but claims outweighed premium in 2007 and 2008. Coupled with difficult economic position for global insurance providers, there was already considerable pressure to increase the price of airline insurance in 2009 even prior to the two losses in June.
"The price rises were already occurring even given the airline insurance market's high level of latent capacity, much of which was holding back as a result of the low prices, and the falling fleet and passenger exposure forecasts," it added.
The broker said with losses so far this year are already above the full year average, the industry is likely to "see insurance premiums rise significantly for the rest of the year and potentially into the next".
"This will be a bitter pill to swallow for an industry that is already seeing passenger numbers fall as a result of the global economic downturn as well as fuel prices that are climbing once again," it added. "So far this year, only around a third of the total number of expected airline insurance programs have been placed, representing about 20% of the total forecast lead hull and liability premium.
"With 19 of July's 36 expected renewals now placed, it seems that the market is already hardening in response to the losses. Nearly half of the programs placed so far have seen lead hull and liability premium costs rise by more than 25% compared to 2008 as a result of either losses or projected fleet increases. This pattern is likely to continue for the rest of the year."