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PRICING UNDER PRESSURE IN AVIATION MARKET SAYS REPORT
Thursday 23 September 2010
Author: Russell Group
 

The insurance industry’s efforts to harden aviation pricing have yet to bear fruit despite some high profile losses in recent months.

Aon Risk Solution’s aviation unit issued its Airline Insurance Market Indicators, 2010/11 report which examined the first seven months of the year for those fleets valued at in excess of $150 million. It found while rates were increasing in some areas the number of airlines being asked to pay more was not as broad as they had been in 2009.

It added that the pricing trends come as confidence is returning to the airline industry with airlines predicting a 13% increase in passenger numbers in 2011. This compares to a 9% decrease predicted at the same time last year. Similarly, airlines in every geographic region across the globe are investing in their fleet, with average fleet values (AFV) forecast to rise by 9%, compared to only 1% last year.

Simon Knechtli, aviation leader at Aon Risk Solutions commented: "The losses in the airline industry during the last couple of months might be expected to have hardened the airline insurance market. In reality however, appetite for airline risks remains buoyant in the insurance market. Underwriters are competing for their desired market share and the strength of this competition has blunted the aspiration for higher prices as shown by the statistics in this report. We expect this to continue for the remainder of 2010, with further capacity entering the market in October and little evidence at this stage of anyone leaving.

"Airlines' willingness to invest in fleet renewal shows that there is a keen focus on maximising operational efficiency in the industry but also that confidence is starting to return to the industry. After the financial turmoil of the last couple of years, airlines are predicting that people will be returning to travel, for both business and leisure, in greater numbers than we have seen for the last few years. This is great news for airlines particularly if yields start to increase in parallel."

The report stated that on average, airlines that have renewed their lead hull and liability insurance programmes between January and July 2010 have seen a 7% increase in the cost of the insurance premium they paid compared to last year. More than 60% of those that have renewed so far have paid an increase in premium, but this is fewer than the 80% that received the same treatment in 2009, suggesting the cost of insurance for airlines is stabilising or even falling in real terms.