Despite the slight rate increases that aviation underwriters experienced in the final quarter of 2008, as 2009 began they could foresee another difficult year ahead.The events of September 11, 2001 left the insurance and reinsurance markets reeling. Immediate rate rises enabled the market to rebound. However, an improvement in aviation operational safety standards and a lack of major liability losses in the intervening years created an environment where premium levels fell, year on year. Aviation insurers had cause for concern.

Additionally the global economic crisis had hit the airline industry hard following a number of difficult years.

Major losses during 2009

Major Loss Total (xs $10m) :                         $1,683,384,003

2009 to mid December  :                                  $1,862,394,003

Source: Marsh Limited

The first major aviation loss to the market was the Colgan Air event, in which 49 people were killed when a Bombardier Dash 8 crashed on approach to Buffalo Niagara International Airport (New York State, U.S.) in February 2009.

Following this event, underwriters sought to maintain the momentum of premium increases that had been obtained in the final quarter of 2008.

However the most memorable event of the year was the tragic loss on 1st June of Air France Flight AF447. En route from Rio de Janiero to Paris the Airbus A330 crashed over the Atlantic Ocean with a loss of 228 lives. This is one of the largest aviation losses to have occurred in the insurance market.

Unfortunately, June continued to be a difficult month for aviation underwriters. Yemenia lost flight IY626, an Airbus A310 with 152 lives.

Since these three events have an approximate cost to the market of USD1,200m, aviation underwriters were confident of a subsequent hardening of the market in the Third and Fourth Quarter renewals. Higher rate increases were expected and applied to loss bearing accounts.   

Insurers have withdrawn some capacity from the airline insurance market in the last 12 months. This has been offset by new entrants, who have not suffered 2009 and prior year losses, indicating that they are hungry for new business. The final quarter was renewal time for approximately 76 percent of the total world airline fleet, accounting for approximately 66 percent of total global premium income to the market. The new capacity, eager to be involved, has dampened the level of expected rate increases.

• Capacity for a Non-US Airline:              217%
• Capacity for Far- East Airline:                217%
• Capacity for US Airline:                         180%