?The aviation insurance market is continuing to soften despite a sharp increase in premiums last month, Aon said.

It warned that if rates continued to fall then capacity could withdraw from the market.

The average lead hull and liability premium increased by 9% in August – the first increase for 12 months and 25% above the year average.

But Aon said the rise was the result of increases in premiums in August’s largest renewals.

The broker added that this represented only a $2m increase in premiums in the face of a $85m reduction so far this year.

“The situation that seems likely to evolve is that capacity could continue to fall because of the low prices, although the high level of claims in the industry so far this year may encourage operations to think long and hard before exiting the market,” Aon said.

Renewal activity in October would give the best indication of market direction until the 2008/2009 renewals took place, it concluded.