Earned premium from airline insurance could fall this year as travellers cancel plans and carriers cut flights due to the war in the Middle East, according to WTW.

Airline policies are adjustable according to exposure, so the reduction in flights could affect underwriters’ performance, the broker says in a market update.

The number of flights is also expected to fall as the higher cost of aviation fuel makes marginal routes uneconomic.

“Insurers have been trying to rebalance their premium income levels to maintain profitability against their modelled levels of claims frequency and loss severity, so a reduction in earned premium will be factored in despite the level of uncertainty for the balance of this year,” the update says.

More hull risk contracts will renew in the second half and WTW says although there is some overcapacity in the market, it expects negotiations to be robust.

Insurers say they are taking a measured approach to rate increases to achieve a sustainable market premium without attracting an influx of additional capacity, but WTW says competitive forces will play out in renewal negotiations as insurers try to protect market share.

It says the industry has responded well to the disruption in the Middle East, with brokers, insurers and airlines working closely to exchange information, understand exposure and ensure coverage remains in place.