Loss rate leads to brighter insurance picture

Aon Aviation reports that, at the half-way mark for the year, trends suggest that we might see the first profit in the insurance sector in three years.

Aon says that "there is increased confidence in the airline sector on the part of the insurance markets. This is exceptionally good news after a very challenging couple of years.

"There are a number of reasons for the change in stance, but the main two are likely to be the average level of claims so far in 2010 coupled with the 20% increase in the cost of insurance last year.

"Taken in conjunction, this would suggest that the sector is on course to deliver a return to underwriters in 2010 assuming the current trends remain in place...

"... the overall loss total is US$733 million at present, compared to US$1,590 million in 2009. It should be pointed out that the Air France loss at the beginning of June last year took the cumulative loss data significantly higher than the long term average...

"... the cumulative loss amount for 2010 is currently 10% below the 1996-2009 average. This is likely to be welcome news across both the airline industry and its supporting insurance markets, particularly following the exceptionally high level of claims in 2009.

"If the value of airline incidents continues at its current level, the total value of claims for 2010 will be around US$1.5 billion, well below the US$2.3 billion recorded in 2009.

"More importantly it will be significantly below the US$2 billion of lead hull and liability premium that the industry could deliver if current trends continue.

"The deficit may not lead to a rapid return to soft market conditions, however. The airline insurance market has made a loss for the last three years in a row, a position that is unlikely to have gone unnoticed by capital providers. As a result they are likely to try

and hold prices high for some time before they are allowed to gradually fall."