Current capacity levels are keeping aviation prices down but profit is needed, soon

As hard-pressed aviation brokers approach the annual renewals season looking to drive a bargain, underwriters will face some serious challenges in their pricing and scope of coverage.

Willis business development manager Steven Doyle said the airline industry has generally suffered heavy losses this year, which should push up rates.

In April, a Tupolev 154 plane carrying Polish president Lech Kaczynski crashed in Russia, killing 90 people, while an Afriqiyah Airways Airbus 330 crashed in Libya causing more than 100 deaths. May then saw an Air India Express Boeing 737 come down in India, killing 158 people, followed in July by a crash in Pakistan involving an Airblue domestic flight, resulting in 152 deaths.

But an excess of capacity is acting as a balancing effect. It means that renewal rates negotiated in the final three months of this year should be up by a modest 5%, agree analysts contacted by Insurance Times.

Doyle said: “October isn’t as significant as has been in the past. We are in a situation where the capacity and the losses are currently presenting opposing forces that are bringing the markets to a largely neutral position.”

Aon senior analyst Magnus Allan agreed that capacity levels are “very healthy”, which is helping to hold prices down. One new entrant pumping capacity into the market is Hiscox, led by underwriter David Slevin.

Allan predicted that insurers will scale back capacity in coming years if business is not profitable.

He said: “I think people will look at it and think: ‘Right, we need to get a profit in 2011.’ Or else there could be a reduction in capacity in 2011 and 2012.”

Doyle said the uncertain economic outlook will also bear heavily on underwriters' minds.

He said: “The economic issues around the aviation industry are going to be the economic challenges of the insurance market.”