Major U.S. airlines negotiating insurance renewals during the fourth quarter face a market that has hardened significantly since a year ago, brokers say.

Airlines have faced average rate increases between 10% and 20% for hull and liability insurance so far this year, a trend that may worsen in the fourth quarter. Most major airlines renew their insurance programs in November and December, including Continental Airlines Inc., Delta Air Lines Inc., JetBlue Airways Corp., Southwest Airlines Co., United Airlines, US Airways Group Inc. and United Parcel Service Inc.

According to various broker estimates, 60% to 80% of the market renews during the fourth quarter.

“We don't expect a massive change in the trend between now and the end of year,” said Steve Doyle, London-based executive director at Willis Aviation, a division of broker Willis Group Holdings Ltd. “The trend is likely set for the early part of 2010.”

About 78% of placements so far this year have faced increases in lead hull and liability costs, according to Aon Ltd. In 2006, only 22% of renewing accounts faced such increases.

Brokers said following insurers have been particularly aggressive. The traditional disparity between the rates for lead and following insurers has dwindled to low single digits, Mr. Doyle said.

The only reason rates have not increased further, brokers said, is that capacity remains plentiful. Although Travelers Cos. Inc. in October decided to stop writing U.S. general aviation business, no major underwriters have exited the airline insurance market. Wayne Wignes, Chicago-based vice chairman of JLT Aerospace (North America) Inc., a division of JLT Reinsurance Brokers Ltd., estimated current market capacity is 150% of what is needed.

But Mr. Wignes said actual capacity is lower because many underwriters are choosing to write smaller portions of accounts or withhold capacity until they can achieve rates they desire.

Mr. Doyle said many underwriters have sought 25% rate increases since the June 1 crash of Air France Flight 447 off the coast of Brazil. That was the fourth high-profile accident of the year. Others include the June 30 crash of a Yemenia Airways flight into the Indian Ocean; the Feb. 12 crash of a Colgan Air Inc. jet in Buffalo, N.Y.; and the Jan. 15 ditching of a US Airways flight in New York's Hudson River in which all survived.

All told, there has been about $2 billion in losses this year, brokers say. Excluding 2001, 2009 is expected to be the costliest year in aviation history and likely will join 2008 and 2007 as loss-making years for aviation underwriters, said Magnus Allan, a London-based aviation analyst at Aon Aviation and Aerospace.

Aon projects that, by the end of the year, aviation underwriters will have been hit by $2.3 billion in claims compared with a long-term annual average of $1.4 billion. If trends hold, 2009 premiums will reach about $1.9 billion, leaving a shortfall of about $400 million that likely will continue to exert pressure on rating levels, Mr. Allan said.

“Claims this year have complicated matters because claims are so high above average that it's making it very difficult to say where the market should be,” he said. “(That) is why 2010 is going to be such a focal year.”

According to broker JLT Aerospace, hull losses actually have decreased slightly in 2009 over 2008, while liability losses have risen 138%.

Recent years had been unusually free of aviation losses, Mr. Wignes said.

“We went through delusional periods where the safety experience, particularly in the U.S., was so terrific, there were some who had convinced themselves that we had engineered ourselves out of loss experience,” Mr. Wignes said. “Though great, great strides have been made in flight safety training...there are going to be losses.”

Brokers say they do not know if or for how long aviation underwriters can maintain discipline in withholding capacity to get desired rating levels. They say insurers and their reinsurers have been hit hard by the aviation losses, investment losses and other factors.

Angus Roberts, an aviation underwriter for Travelers' syndicate 5000, said in a recent JLT Aerospace newsletter that the large losses this year were not the real reason for the aviation rate increases.

“The real reason that rates are increasing is simply that they have been reduced, indeed by over 40%, since 2004,” Mr. Roberts said in the newsletter.