Aon Study Finds Aerospace Premiums Down by 11%

March 7, 2008

Aon’s recently published “Aerospace Insurance Market Review 2007” highlights the year’s “soft market driven by high capacity and historically low claims.”

Aon determined that the “aerospace insurance market softened in 2007, responding to the high level of capacity and low level of losses in the aviation industry over the last five years.” The average lead premium reduction was around 6 percent – less than the “fall witnessed in the airline insurance market – but the direction was consistent across the manufacturer, service provider and airport sectors that comprise the aerospace insurance market.”

The Aon review brings together data for the last year and extrapolates its likely effect on the market in 2008 and beyond. The “key findings” of the review are:
— Average lead premium reduction for 2007 was 6 percent, compared to a 3 percent growth in 2006;
— Asian operations received the best average reduction at 8 percent, closely followed by Europe and the Americas with 7 percent and 6 percent reductions respectively;
— Service providers had the largest reductions in 2007, with lead premium falling by 11 percent on average compared to a 4 percent increase in 2006; airport lead premium fell by 8 percent on average in 2007, compared to a 2 percent increase in 2006; the manufacturers sector fell by 3 percent, compared to a 5 percent average growth in 2006;
— The number and value of claims have been limited in the aviation sector generally, although the high level of airline hull losses in 2007 may translate into an increased number of claims on the aerospace market as accident investigators assign responsibility.

“The aerospace insurance market saw modest reductions in the price of lead premium throughout 2007, but there were differences in the way that the different sectors within the market were treated,” noted Doug Peterson, Aon Aviation & Aerospace Group Practice Leader. “This suggests that the markets are pricing insurance programs according to their actual level of risk, rather than simply applying an industry average year-on-year price change. This is a sign of a healthy and functioning market, although there is an argument that certain sectors are not receiving the same level of reductions as a result of historical loss perceptions that do not take recent improvements into account.”

The full report is available at: http://aon.mediaroom.com/index.php?s=55.

Source: Aon – www.aon.com

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