Lloyd's insurer Brit has revealed it is to stop underwriting direct aviation risks, including airlines, general aviation and aviation product risks.
Despite forecasting aggregate premium income of £60m for the 2003 year of account, Brit said it was not confident the aviation market would, "give us sufficient comfort that the account will provide a suitable return on capital employed over the medium and long term".
Aviation reinsurance, aviation war and space business will be unaffected.
Dane Douetil, chief executive of Brit's underwriting, warned that the aviation sector would need to undergo several changes in order to produce a consistent return to insurers.
He said: "Many airlines are facing difficult economic conditions stemming from a sharp downturn in long-haul passenger numbers and the number of brokers controlling the significant majority of premium in this class is limited. These factors, and the material reduction in premium levels since the peaks reached following the losses of 11 September 2001, have led us to this decision.
"The vertical and sideways exposures that are typical, particularly in airline accounts, mean that the market is overly reliant on reinsurance, this is not consistent with our prudent approach to counterparty risk.
"Fundamentally, while we believe that our account is currently profitable, the risk-to-reward balance that this account represents does not fit with our portfolio."
Brit Insurance Holdings chief executive Neil Eckert said: "This decision represents the first true test of our vigorous approach to asset allocation. The decision was not based on price alone but also on the structure of the product and the group's developing strategy.
"We are focusing on specific product lines where we feel that the underlying business is healthy and can form a core part of Brit's future. Whilst aviation may currently be profitable, we feel that we can more effectively deploy our capital in other areas of our business."
