The majority of airline insurance contracts are renewed in the latter half of the year and buyers are bracing for more expensive premiums. They know there is a good reason for rates to rise. The loss figure for the year to date is horrific.

The loss figure at the time of writing is US$1,659m compared to US$798m for the same period in 2008.

The year started badly for underwriters, with the ditching of an Airbus A320 into New York’s Hudson in January. Incredibly no-one was killed in that accident. But then in February a passenger plane crashed into a house in Buffalo New York killing all 49 people on board and one person on the ground.

June 2009 alone was the most expensive month ever for aviation claims under standard hull and liability classes, excluding September 2001.

In June, an Air France Airbus A330 crashed en route from Rio de Janeiro to Paris with the loss of 228 people onboard; later in the month, an A310-300 operated by Yemenia was lost in the Indian Ocean with 153 passengers and crew (there was a single survivor).

The average price of lead hull and liability premium rose by over 20% from July to August (though removing one big US renewal from the figures gives a more realistic increase for the year to date of 14%).

Ten percent premium reductions were registered in previous years so clearly something is happening.

And it isn’t simply the worsening claims record. Aon says that the supply and demand equation is being affected by shrinking capacity as capital providers head for the exits.

This view is backed up by news coming out of the Lloyd’s market at the halfway point. In its interim results report, the prominent Lloyd’s aviation insurer Amlin notes that the class has not been ‘attractive to us’ for an extended period.

But Amlin also confirms that the recent heavy losses are providing impetus for ‘much needed rate increases’ that it anticipates will come through this year.

Some people talking up the market have suggested that increases of 30-40% are achievable/necessary. The reality, without another major disaster, is an average increase of 20%, however.

Related links:

Air disasters timeline, BBC News, 15 July 2009