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Underwriter moves don’t signal a trend

LONDON-Recent moves by two Lloyd’s of London underwriters to scale back their aviation insurance business do not signal a wider trend of declining capacity for airlines, market participants say.

Instead, they say, the two entities independently concluded that the prevailing rates in the aviation market did not justify their exposure to airline hull and liability risks.

Lloyd’s insurer Hardy Underwriting Group P.L.C. last week said it would reduce its exposure to airline coverage, saying that rates have fallen too low for the risks to be worthwhile.

Tim Griffin, compliance officer and a director with Hardy Underwriting, said that the company “is not getting out of the aviation business altogether” but that “it would continue to write aviation business only if it is worth our while.”

Mr. Griffin added that “the pricing of these risks is the only way we can control our profit margins, and if the pricing is not right, then we will not continue to underwrite the risk.”

According to Mr. Griffin, by the end of 2002 enough additional capacity had entered the aviation insurance market that within 12 months of the catastrophic losses of Sept. 11, 2001, airline rates had started to decline.

Currently, aviation risks account for about one-third of Hardy’s capacity of £100 million ($159.6 million), Mr. Griffin said. Although it is scaling back its airline business, Hardy will continue to underwrite private aircraft and helicopters, which account for most of its aviation risks.

Hardy’s move follows Brit Insurance Holdings P.L.C.’s announcement earlier this month that it would cease underwriting direct aviation business (BI, Aug. 11). In a statement, Brit said that the aviation market had not undergone sufficient restructuring to ensure that the company would see long-term profits.

London market observers do not see the moves as part of a wider trend.

Dave Matcham, director of operations and secretary of the aviation executive committee at the International Underwriting Assn. in London, said that “aviation insurance has always been a niche market, and this decision to cut back on their exposure to airline cover looks like a strategic one on Hardy’s part.”

Steven Doyle, global practice manager for Aon Ltd.’s aviation and aerospace global practice group in London, said that many companies are currently in their planning stages for the 2004 underwriting year. “Hardy has made a sensible step by announcing that while it is still committed to providing airline cover, it will judge each case by its merits and will not automatically renew or write business which it thinks will be unprofitable,” he said.

“These two companies are not major players in the aviation market, so it’s not as if there will be a vacuum because they have decided not to write some new business,” said a spokesman for one brokerage in London, who asked not to be identified.

A spokesman at another brokerage who asked not to be named said that “aviation rates are not as good as other commercial lines, so it is not surprising that some smaller players are thinking about cutting their exposure to underwriting aviation policies.”

One London aviation broker said that 70% of airline renewals and 80% of premiums are written between Oct. 1 and Dec. 31, “which suggests that both Brit and Hardy have made their decisions early on to pull back from providing too much aviation cover for next year.”

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