Air Transport

The airline insurance market looks set to make its first loss since 2000, with 2007 hull losses likely to outstrip premiums. An Aon insurance forecast based on 85% of 2007's activity suggests the total hull and liability premium in the market will be around $1.46 billion, but the claims will be at least $1.53 billion.

Despite aviation being a catastrophe market, the high level of claims is the result of a fairly consistent level of losses throughout 2007, rather than a single major loss. This deficit has come after a number of years of low global claims frequency, a factor that has attracted a great deal of insurance capacity to the airline markets as global underwriters have looked to diversify their portfolios.

Aon aviation division chairman Doug Peterson reckons a rapid reduction in underwriting capacity is unlikely as a result of one poor year, but if the trend carries on the market may get significantly tougher in 2009.

"As the level of losses has crept up, the market has seen the possibility of an unprofitable year and insurance prices have become less soft in the final quarter as a result. Capacity remains high and the aviation industry is still very much safer than it was even 10 years ago, so we do not expect capacity to plummet overnight," he says.