Insurance Marketplace Realities 2024 Spring Update – Aviation & space

Rate predictions: Aviaton and space

	Trend	Range
Airlines		-5% to +5%
Airline hull war		+10% to +25%
Airline excess war liability		+25%
Aircraft lessors/banks		Flat to +10%
Product manufacturers and service providers		Flat to +7.5%
Airports and municipalities		Flat to +5%
General aviation		Flat to +10%
Space	Rate changes depend on risk and limit; percentage range not applicable

Airlines

Below-average claim activity and plenty of capacity mean that underwriters are under pressure to keep adequate premium levels. The major focus remains on the potential claims arising from the Russian aircraft seizure, which could be more than $12 billion. Insurers attempted price increases earlier in the year but overcapacity in the airline hull & liability sector, combined with low claims and exposure growth, helped to keep increases in check.

• Ample market capacity allows clients and brokers choice and leverage.
• Attritional claim activity remains low but is trending upward with exposure growth.
• Underwriters are concerned about supply chain issues and repair costs escalating, as well as claim inflation due to liability awards.
• 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.

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

• Insurers have been hard pressed to pass on this cost to the airlines.
• Will war losses spill into the H&L market? It’s still too early to be totally confident that they won’t.
• Deterioration of losses in the manufacturing segment continued to impact the market in 2023, 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 the hull war market in 2023 after the withdrawals of some major players.
• The outbreak of civil unrest in Khartoum exacerbated the challenging conditions.
• The aggregate of the Russian war losses is still a big unknown but not likely to get worse.
• Positive developments in the negotiations and settlements between the lessors and the Russian airlines have helped in stabilizing the market reaction.
• Pricing will increase for both the hull war and excess third-party liability.

Aircraft lessors/banks

Market conditions remain challenging for this class following changes to risk perception and a continued emphasis on geographic aggregation of assets. Prior reinflation of the hull war sub-class, which led to the disproportional cost increases, appears to have now stabilized.

The uncertainty of the overall loss magnitude continues. However continued negotiation and settlements which have been achieved between lessors and Russian airlines have begun to mitigate the previously projected industry losses. The shift in risk perception as already reported for both direct and reinsurance markets in conjunction with renewals of aviation insurers’ own reinsurance protections continue to negatively impact marketplace conditions into 2024.

• As widely reported, lessors’ legal proceedings against insurers are expected to begin in the courts later in 2024.
• The insurance market remains unable to deliver a consolidated coverage position; reserves are, however, being set by insurers and reinsurers.
• Geographic aggregation of assets and geopolitics all remain in major focus among (re)insurer senior management and are resulting in coverage limitations now applied broadly across this sector.
• Reinsurance and retro markets continue to curtail coverage and increased pricing — similarly leading to direct insurers reducing offered shares resulting in demand/supply imbalance and higher client pricing continues to prevail.
• Market capacity withdrawals have curtailed, but limited new entrants remain; insurers continue to review application of sub-limits and cover limitations to manage their own aggregation exposures.
• For hull war sub-class, confiscation etc. (paragraph (e) perils of wording), application of sub-limits and specific country aggregates offer options to moderate pricing driven by retraction of available capacity; non-confiscation options remain available.

Aerospace manufacturers and service providers

We project the aviation sector will continue its growth trajectory, driven by increasing demand for air travel, fleet expansion by airlines, and technological advancements in aircraft design and manufacturing. Industry growth combined with recent exceptional claim events have led to a greater demand for aviation products liability insurance coverage and limits.

The aerospace insurance market is expected to remain stable in 2024, the result of opposing pressures.

The headwinds

• Insurers’ rising reinsurance costs and larger reinsurance retentions
• Recent exceptional loss events and historic major claim deterioration
• Inflationary and supply chain disruption impacts on the cost of claims
• Increased actuarial approach to pricing

The tailwinds

• An abundance of capacity is mitigating insurer premium uplift desires.
• Trend of insureds seeking greater limits of liability may assist in quenching insurers’ overall portfolio premium goals.
• As a result of market competition, insurers recognize that technical/actuarial pricing cannot be the sole factor in their decision making.
• The increase in forecasted industry production rates combined with significant industry claim activity has driven up demand for multiyear placements, a volatility-reducing strategy for both insureds and insurers.

While insurers continue to seek premium uplift across their portfolios, programs with favorable loss pictures can successfully mitigate cost increases. Loss-driven accounts may be subject to increases, but capacity remains available. Insureds interested in challenging the market with alternative structures and/or capacity strategies can achieve superior results.

An exception to this forecast is the war market, which remains challenging as the result of the Russia/Ukraine crisis. Settlements by Russian insurers have started to build clarity around the final loss quantum for the international insurance market; however, these settlements have slowed, and the industry awaits key court dates later this year. Capacity in this sector is restricted, but building and the rate of war premium increase continue to slow.

Airports and municipalities

Aircraft and passenger traffic continues to rebound in a post-COVID era, driving increased exposures on site. Additionally, unique claim incidents and large verdicts continue to keep social inflation and nuclear verdicts fresh in carriers’ sights. These factors are leading to a general sense that pricing remains inadequate. However, with the addition of interested capacity, market pressure is shifting away from the hard market cycle of the past few years.

• Though rate 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 helpful solution to engage capacity on larger limit accounts and establish a more stable program for the future.

General aviation

Overall, the general aviation sector is in a strong position and, while underwriters continue to push for uplift in rates, capacity in the market remains strong. Underwriters are looking to maintain and grow their portfolios with accounts perceived to be safety-driven with good loss records and positive market engagement.

• Rotor-wing and charter losses in 2023 and into 2024 have insurers scrutinizing their portfolios to ensure they understand the specifics of their exposure and how it is being managed.
• Runway excursions and attritional losses plagued the industry in 2023 and this continues into 2024. The aggregation of these attritional losses with the high value of general aviation aircraft equipment continues to drive rating conversations in this segment.
• The ramifications of the escalation of the crisis between Russia and Ukraine two years ago continue to reverberate around the entire aviation sector, though there is some light at the end of the tunnel with some movement toward resolution happening in 2024.
• Environmental scrutiny around the general sector continues, though the move to more environmentally sensitive propulsion systems in the near term, as well as the evolution of eVTOL aircraft could make small and regional jets one of the most environmentally stable modes of transportation.

Space

Market capacity is stable, and insurers show a continued emphasis on technology-based risk differentiation.

• The market is beginning to show how it will respond to recent results.
• Premium rates have risen, but capacity requirements are a critical piece of space placements.
• Underwriters maintain focus on technology-based risk differentiation.
• Limited capacity is available at high rates 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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