0:03
ANNOUNCER: Welcome to WTW's Global Marketplace Insights series, where our experts bring you the latest risk and insurance perspectives.
0:22
ED LOUTH: The fourth quarter is upon us, a traditionally busy time for the aviation insurance market, but perhaps best known as being the airline insurance renewal season. Something like 70% of the world's airline premium renews between the 1 October and the 31 December. So it's a very busy time for the market. We see a lot of activity with clients and insurers at this time of year, and 2024 has been an interesting year.
0:48
I think over the past two or three years, what we have seen is a broad profitability return to the market, and that has attracted in new capacity and has helped to drive better pricing for clients. During the course of 2024, what we have generally seen is that exposure increases as airlines, businesses are growing have been traded against slightly lower rates to deliver broadly flat premiums for clients. So they have benefited from a per unit cost reduction during most of 2024.
1:23
As we come towards the end of the year, we're in discussion with insurers. There seems to be a broad appetite in the market to expand, to write new business, to come on to programs that perhaps they haven't been interested in writing in the past. That competition is helping to drive price in clients' favor. So I think our outlook towards the end of the year is that we are likely to see some softening in rates and we're likely to start to see some prices come tumbling down.
1:51
That's a respite for clients after what have been a few difficult years, particularly during the pandemic, and a hardening of insurance rates as we've come out of a period of claims activity related to the Boeing 737 MAX. So good news on the face of it. I would say that there are some gray clouds on the horizon. Theres the issue related to the Russia and Ukrainian conflict and the confiscation of the aircraft, which were based in Russia. That has rumbled on for the past two and a half years now, and we are now approaching a point at which we're likely to see a resolution within the next few months. The high court in Ireland is already sitting and has been in session since June of this year. The proceedings in the UK high court started within the last couple of weeks and are likely to rule upon whether there is a claim and where that claim sits within the next two or three months.
2:48
So there is definitely the perspective or the prospect that we could see some major changes. We suspect that probably is going to hit first quarter of 2025. So we're hopeful that we will have a quiet and uninterrupted renewal season as we've moved towards the end of this year. But certainly, clients should be planning for the future and should be talking to their insurers about what that future looks like. We're the worst to happen and those claims were to manifest early next year.
3:17
Outside of the airline market is actually a very busy time for both the aerospace and general aviation sectors as well. I think they have seen less pronounced rate change than we have seen in airline. Aerospace has been on a generally flattish parameters, claims records have been important and markets have been judging insurers based upon their history and the exposures that they're bringing to the market, but we have broadly seen those renewals going through flat.
3:48
General aviation has responded really in not dissimilar fashion to airlines, in that we have seen rates reductions, we have seen new entrants to that market, and that competition has driven pricing in our clients favor. So it's tended to be a good year this year to renew as a general aviation operator, and we fully expect that to continue through to the end of the year as insurers look to fill out their business plan.
4:14
The one difficult aspect at the moment, or what has been a very difficult aspect for the last couple of years has been war insurance. That has really been in the spotlight following Russia and Ukraine. That then followed up with a significant claim in Khartoum in 2023, and we have seen further whole war losses in 2024, particularly in Mali. The market has reacted to that and we're at a historical high rating. The good news is that we're not seeing further increases, but what we are seeing is a continuation of that high rating environment, with underwriters looking to push through flat renewals, or as before, rating on the majority of policies.
4:55
Behind the leaders, we have seen new entrants to that market who don't have the legacy of the Russian claims, and that has given them a freer hand to negotiate, and they're also motivated to try and price their way onto programs. So whilst the leaders are looking to draw a line around us before rating, the new markets have been willing to compete on price to secure a share, which has driven a better composite pricing for clients, as we're able to place chunks of capacity or new capacity at discounted pricing to the leader.
5:28
Again, we would expect that to continue through to the end of the year because that pattern has now been set. But as we move into 2025 and we start to see some resolution for these claims, there is a prospect that we could see some changes within that war insurance market. I think the fear is that we will see a withdrawal of capacity as people are responding to the size of those claims. And typically, in a market where we see capacity falling, the supply and demand curve would suggest that pricing will increase to be able to secure capacity from those new entrants to the market.
6:07
For that reason, we have clients who are looking at longer term deals as we enter the final quarter. I think that's certainly worth considering. It's something to discuss with your broker and your insurers. And if you can obtain a deal on attractive terms without subjectivities, it could be a smart decision to try and lock in pricing now to provide yourself with some insulation as we move forward.
6:31
But renewal season isn’t going to be too difficult for clients, we're expecting that we're going to be able to deliver some favorable results and that trend will continue through to the end of this year. And we keep our fingers crossed for the future and hope that the claims which could potentially manifest are dealt with by the market in a sensible way. And we can find a way through to a soft landing for the insurers.
