Increased flights and passenger numbers posed greater risk to insurers.

The continued growth in airline passenger numbers could hamper the long term profitability of the airline insurance market unless premium rates increase, according to Aon.

The broking giant said this week that rates in the airline market had begun to show signs of recovery after months of decline, but that increasing risk exposures such as fleet values and passenger numbers threatened to offset this.

The average lead hull and liability premium rose by 7% in the first quarter, with a 16% rise in April, Aon said. In the first four months of 2007, the average premium fell by 24%.

But Aon cautioned that the increases were partly offset by growth in risk exposure. The average fleet value and projected passenger numbers, the main gauges of insurers’ exposure, have risen by on average 20% for renewals in 2008. This suggested that on a ratings basis the market was flat or even falling in real terms.

Aon said that the May renewal premiums would be pivotal for the direction of the market in 2008/09.

“A great deal of the increases in lead hull and liability premium that have occurred so far this year appear to have been the result of exposure growth, but if the [May] renewals come in with increases in hull and liability premium, it would be further evidence that the market has been successful in hardening,” Aon said in a report on the airline insurance market.

“The market appears to have at least stabilised if not hardened despite the high capacity creating the potential for competition. Prices have fallen for 19 of the last 21 quarters and no matter how safe the industry becomes, some sort of correction has become almost inevitable if the market is to remain viable in the long term.”