Flying high

Within the airline insurance sector the end of the second quarter seemingly continued the trends that have been in place since October last year, with average lead premium reductions continuing in the mid- to high-teen range, according to analysis by Aon.

At -15%, down on the -19% average witnessed year-to-date, it could be suggested that the market is beginning to change and that a hardening could be on the horizon,.

June’s activity may be deceptive, however. While eight of the month’s renewals enjoyed double-digit reductions, the ninth airline, an Eastern European flag carrier, saw its premium increase by over 150% as a result of adding a third airline to its group insurance programme.

Factoring this renewal out of the results for the month would have meant a -19% reduction for June, although there would have been a limited impact on the quarter's figures.

This supports the suggestion that any firming of market conditions that does take place over the next few months is only in its preliminary stages.

There has also been some contraction in market capacity as insurers have examined their commitment to airline insurance in the face of nearly twelve consistent months of double-digit reductions in lead hull and liability premium.

As a result, there could be expected to be a great deal of focus on what will occur during July, which is likely to be the third most active month in the airline market’s calendar. Based on the data that Aon has collected so far, it seems that the

reductions are continuing.

In 2006, July represented 12% of the total number of annual renewals and 11% of the premium, as well as 25% of the renewals and 39% of the 0premium in the first three quarters.

Although there is expected to be some development to this amount as a result of consolidation and renewal date changes, July’s prominence is fairly assured in the

renewal annual calendar.

While July activity has an increasing importance, the anniversary of the consistent average reductions does not arrive until October. While August 2006 witnessed a -12% reduction, average lead hull and liability premium rate in September grew by over +30% as a result of large changes at individual organisations during a relatively inactive month.

As a result, it seems likely that the reductions in average airline lead hull and liability premium will continue until at least the final quarter. The indicators are that sharp reductions will be available until October, which may turn out to be the

barometer for the trends for year-end and 2008.

Looking at the second quarter's results, 28 of the 46 renewals received double-digit reductions according to the Aon data. The growth in passenger exposure was relatively consistent during the second quarter in comparison with the first. The +12% average change in fleet value during the second quarter builds on the +13% growth recorded during the same period in 2006.

Similarly, the +16% average growth in passenger movements for airlines that renew during the second quarter is pretty much on a par with the +19% average change recorded last year.