Insurance Marketplace Realities 2024 – Aerospace

Rate predictions: Aerospace

	Trend	Range
Airlines		-10% to flat
Airline hull war		+100%
Airline excess war liability		+100%
Aircraft lessors/banks		+50% with multiples for hull war
Product manufacturers and service providers		+5% to +15%
Airports and municipalities		+10% to +15%
General aviation		Flat to +10%
Space	Rate changes depend on risk and limit; percentage range not applicable

Airlines

Aircraft and passenger traffic continue to rebound in a post-COVID era, driving increased exposures on site. Also, large and unique verdicts continue to keep the social inflation and nuclear verdicts fresh in carriers’ sights, leading to a general sense that pricing remains inadequate. Below-average claim activity and plenty of capacity mean that underwriters are under pressure to keep adequate premium levels.

• Ample market capacity allows clients and brokers choice and leverage.
• Attritional claim activity remains low but is trending upward with exposure growth.
• Underwriters want to stay ahead of this curve and premium levels to keep pace with claim activity.
• Underwriters are concerned about supply chain issues and repair costs escalating, as well as claim inflation due to liability awards.
• Though rating increases continue, we have seen a shift to individual account assessment with more significant changes in appetite, structure and rating if there is an unfavorable loss history.
• Coverage adjustments to non-aviation excess limits have occurred in the past few years and are less significant moving forward.
• All markets are still seeking what they determine to be adequate rates.
• Vertical placements (quota-share) are a good solution to engage capacity on larger-limit accounts and establish a more stable program for the future.

While reinsurance costs have increased for most underwriters it would appear this increase has not had a significant effect on their available capacity.

• It is yet to be seen if underwriters will be able to pass these increased costs on to their airline clients.
• Will war losses spill into the H&L market? It’s still too early to be totally confident that they won’t.
• Deterioration of Boeing Max losses continued to hammer the market in 2022, although this appears to be coming to an end.
• Reinsurance renewals could mean some scaled-back lines for some underwriters.

Hull war and excess third-party war liability market

• New capacity was able to keep the rate increases somewhat in check in 2022 after the withdrawals of some major players.
• The conflict in Sudan wiped out any premium gains the underwriters were able to make.
• The aggragate of the Russian war losses is still a big unknown but not likely to get worse.
• There has been some press lately indicating that a deal could be struck with Russia to buy the aircraft, but it’s a big hurdle to get over.
• Pricing will increase for both the hull war and excess third-party liability.

Aircraft lessors/banks

Hard market conditions continue to prevail with elevated emphasis on geographic aggregation of assets, but the reinflation of the hull war sub-class which led to the disproportional cost increases of the past 12 months has seen the market looking to hold premium at these levels. The impact of sanctions on Russia remains to result in an unprecedented aviation market claim, with insurers being exposed to previously unquantified hull exposures and with expectations for total industry losses ranging from $10 billion to $20 billion. While the uncertainty of the overall loss magnitude continues, particularly after the recent successful negotiation between a large lessor and a Russian airline, risk perception has already shifted for both direct and reinsurance markets, and the renewal of aviation insurers’ own reinsurance protections will worsen the market conditions for the balance of 2023 and into 2024.

• The combined impact of the Ukraine crisis and airline assets held in Russia are expected to have a far-reaching impact on this class.
• The majority of claims have been formally submitted to the market and, as widely reported, some lessors have opted to start legal proceedings against insurers.
• The market remains unable to deliver a consolidated coverage position; similarly for the majority, reserves also remain to be set by insurers and reinsurers.
• Geographic aggregation of assets, sanctions and geopolitics all remain in major focus among (re)insurer senior management and are expected to result in coverage limitations.
• Market capacity withdrawals have continued with limited new entrants; insurers continue to review application of sublimit(s) and cover limitations to manage their own aggregation exposures.
• Reinsurance and retro markets are strictly curtailing coverage and significantly increasing pricing; similarly, direct insurers are expected to reduce offered shares resulting in demand/supply imbalance and higher client pricing.
• For hull war sub-class, confiscation etc. (paragraph (e) perils of wording), sublimits and specific country aggregates offered options to moderate pricing in addition to the issuance of an updated realistic disaster scenario by Lloyd’s — these factors have accelerated retraction of available capacity; in parallel, non-confiscation options are becoming more expensive as insurers continue to seek the reinflation of this market.

Product manufacturers and service providers

Pressure remains on the aviation insurance market to improve its position on all lines of business. This is mainly due to rising reinsurance cost/claim inflation and the continued possibility of a significant payout to lessors respecting Russia’s nationalization of approximately 400 leased aircraft.

Despite all the headwinds for insurers, capacity remains available, but that could change any time. Our advice to our clients renewing in the coming months remains the same: engage with your team early to secure terms and support, as it is very challenging to anticipate the direction the market will take and when a shift might occur.

• Insurers are pushing for premium increases (+5%-10%); however, at the moment, capacity remains readily available for accounts with no new losses or claim deterioration.
• A few insurers see this as an opportunistic moment to seize larger shares on desirable risks in anticipation of the market hardening.
• War coverage remains a challenge, and we continue to see coverage restrictions being imposed, especially regarding hull war and war liability writebacks.

Airports and municipalities

Aircraft and passenger traffic continues to rebound in a post-COVID era, driving increased exposures on site. Also, large and unique verdicts continue to keep the social inflation and nuclear verdicts fresh in carriers’ sights, leading to a general sense that pricing remains inadequate.

• Though rating increases continue, we have seen a shift to individual account assessment with more significant changes in appetite, structure and rating if there is an unfavorable loss history.
• Coverage adjustments to non-aviation excess limits have occurred in the past few years and are less significant moving forward.
• All markets are still seeking what they determine to be adequate rates.
• Vertical placements (quota-share) are a good solution to engage capacity on larger limit accounts and establish a more stable program for the future.

General aviation

Underwriters continue to push for uplift in rates; however, capacity remains healthy and underwriters are actively looking to maintain and grow their portfolios with accounts perceived to be safety-driven with good loss ratios and positive market engagement.

• Inflation, the Russia/Ukraine crisis, and claim costs remain major talking points in the general aviation market.
• With the cost of business rising at a rapid rate over the last 18 months, insurers have absorbed many of these costs due to market capacity; however, we anticipate inflation will remain an important factor in upcoming renewal discussions.
• The crisis between Russia and Ukraine and the ensuing sanctions on Russia and its allies remain a major feature of discussions due to Russia’s decision to confiscate an estimated 400 lease civilian aircraft, which has had significant ramifications across the entire aviation sector.
• Recent large loss awards in the U.S. combined with increases for the Boeing Max losses have impacted the entire aviation sector.

Hull war rates and war liability rates are increasing and moving toward a new equilibrium, and new aggregates are also being introduced.

• Due to increases in tensions in eastern Europe, the recent fighting in Sudan, and reduced capacity, hull war rates are increasing by up to 100%, and aggregates are now being applied.
• Underwriters are imposing capacity restrictions and price increases on war liability due to rising reinsurance costs and restrictions for this sector.

Environmental, social and governmental (ESG) stances of carriers continue to translate to more restrictive underwriting on risks that present an adverse picture on sustainability, e.g., older aircraft with less efficient/higher carbon emission engines.

• Clients are increasingly being asked by insurers to demonstrate their ESG credentials and, while this has not directly led to an impact on pricing, it is evident that the market is moving in this direction.
• There is also an increased focus on sustainable aviation fuel (SAF) and electric vertical take-off and landing (eVTOL) vehicles.

Space

Market results for 2023

• The space insurance market is in a period of uncertainty due to recent results.
• There have been two large-scale market-wide claims in Q2-Q3 2023, totaling ~$800 million.
• ~$600 million is the expected end-of-year total premium income.

Implications for 2024

• The market is currently assessing how it will respond to recent results.
• Premium rates are expected to rise, but it is too early to predict magnitude.
• 2024 reinsurance treaty renewals could impact available capacity.
• There remains an emphasis on technology-based risk differentiation.
• Limited capacity is available for first-flight or unproven technologies.
• Global space is in growth mode, and insurers can serve as a catalyst for development.

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