Insurance Marketplace Realities 2025 – Aviation & Space

Rate predictions: Aviaton & Space

	Trend	Range
Airlines		-5% to +5%
Airline hull war		+5% to +20%
Airline excess war liability		+10% to +20%
Aircraft lessors/banks		+5% to +10%, flat for hull war
Product manufacturers and service providers		Flat to +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. Claims resulting from Russia’s seizure of aircraft remain unreserved, though there are court dates in various jurisdictions throughout 2024 and insurers will be watching these closely. Underwriters attempted price increases earlier in the year, but overcapacity in the aircraft hull & liability sector combined with reduced claims and exposure growth helped to keep increases in check.

• Buyers are benefiting from a surplus in capacity.
• Insurers continue monitoring Russian aircraft-seizure claims closely.
• 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.
• 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 hull & liability market? It’s still too early to be totally confident that they won’t.
• Deterioration of recent large losses continued to impact the market in 2023, although this appears to be coming to an end.
• Reinsurance renewals could mean reduced capacity 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.
• Claims remain complex and disputed, with an ongoing legal process respecting Russian-related claims.
• 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 balance out the market's reaction.
• Pricing appears to be stabilizing at least for the hull war market as they reach their global target premium of $700 million.

Aircraft lessors/banks

Marketplace risk perception, continued emphasis on geographic aggregation of assets and the prevailing geopolitical climate remain key factors which continue to result in hard marketplace conditions. However, the hull war sub-class has in most part stabilized. The impact of sanctions on Russia has resulted in what continues to represent an unprecedented aviation market claim, with insurers being exposed to previously unquantified hull exposures. While the uncertainty of overall loss magnitude continues, widely reported settlements which have been achieved between lessors and Russian airlines have mitigated elements of the previously projected largest industry loss.

The shift in risk perception produced through the combined impact of the Ukraine crisis and airline assets held in Russia has delivered a far-reaching impact on this class as already reported, impacting both direct and reinsurance markets in conjunction with renewals of aviation insurers’ own reinsurance protections, which have continued to impact marketplace conditions through 2024.

• Lessors’ legal proceedings against insurers have begun in some jurisdictions and are expected to continue in the courts through 2024 and into 2025.
• Geographic aggregation of assets, sanctions and geopolitics all remain in major focus among (re)insurer senior management and are resulting in coverage limitations now applied broadly across this sector.
• Market capacity withdrawals have curtailed but limited new entrants remain, direct insurers share reductions and continue to produce demand/supply imbalance.
• Insurers continue to review sub-limits and cover limitations; detailed reviews of risk underwriting data to ensure exposures are quantified and to manage their own aggregation exposures are now customary.
• To deliver maximum available coverage, this results in a patchwork approach as capacity subjectivities do not align across the available capacity.
• For the hull war sub-class, confiscation etc. (paragraph (e) perils of wording), application of sub-limits and specific country aggregates continue to offer options to moderate pricing; non-confiscation options remain available.

Product manufacturers and service providers

Despite the reinsurance market sentiment of inadequate pricing by direct insurers, the rate of premium increases in the aerospace sector has begun to fall away. Underwriters’ messaging is clear - they still require premium uplift across their portfolios. However, buyers are encountering a relatively stable marketplace with “as before” premiums becoming commonplace. As exposures return to pre-COVID levels, this translates into technical rate reductions for many insureds.

In the aerospace sector, overcapacity has been the key macro influence, driving insurers to compete to maintain their market shares.

• Market capacity remains buoyant and readily available for accounts demonstrating strong performance.
• Predictions on coverage restrictions driven by the reinsurance market have not been realized.
• Long-term agreements are becoming more prevalent, with insureds seeking premium stability despite growth and underwriters aiming to secure their future participation and premium income.
• Insureds are readily exploring the purchase of higher limits as a result of claim inflation and available market capacity.
• Surplus capacity continues to limit rate changes in the excess AVN52 (war) market, with average premium increases continuing to reduce.

Factors to watch

• Reinsurance: Increased reinsurance costs have not driven significant pricing increases for direct buyers. Competition has depressed price increases as insurers focus on income throughput to cover the rising costs of their reinsurance programs and increased retentions.
• Inflation: Insurers continue to cite inflationary pressures as a factor in their desire to increase premiums. However, rising premiums in 2022 to 2023 attracted new capacity to the market, making it challenging for incumbent insurers to increase price while still securing their participation.
• Claims: While there has been an attempt by insurers to focus on claim deterioration in loss-heavy aerospace sub-classes, securing their position and premium income on a going-forward basis has become the more important factor.
• Uncertainty of Russia claims: The quantum of claims related to the Ukraine/Russia crisis remains in insurers’ minds, but rebalancing portfolio pricing as a whole appears to be a higher priority. Uncertainty remains, but with less of a focus than in previous years.

Our analysis suggests that insurers’ expectations for price increases are likely to continue to slow. Capacity remains readily available on placements that can demonstrate strong performance along with robust risk management strategies and protocols. Some insurers are taking the opportunity to offer greater shares and appear to be willing to negotiate more competitive pricing to secure a larger participation on a risk. Insurers continue to message their need for premium uplift, but overcapacity persists, and insurers are increasingly keen to demonstrate their commitment to insureds.

Airports and municipalities

Aircraft and passenger traffic seem to have surpassed the pre-COVID era, driving increased exposures on site. As well, unique claim incidents and large verdicts continue to keep the social inflation and nuclear verdicts fresh in carriers’ sights, leading to a general sense that pricing remains inadequate. However, with interested capacity, market pressure is shifting away from the trends of the past few years.

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

General aviation

Market capacity remains healthy and is driving competitive pricing on risks with a strong safety culture, profitable loss history, as well as requirements for annual model-specific aircraft simulator training for pilots.

(Re)insurers continue to cite the challenges of claim inflation as a driver for their pricing models, and costs associated with inflationary pressures will continue to drive increases in claim settlements.

• With the cost of business rising at a rapid rate over the last 24 months, insurers have absorbed many of these costs due to market capacity.
• Insurance carriers are showing an increased appetite for new business, meaning risks that have not been marketed in the last few years may see beneficial results from obtaining competing quotes.
• The Russian claims remain unreserved and, while legal proceedings are underway, coverage remains in question.
• Over the course of 2023, there were various instances of conflict and unrest (Russia/Ukraine, Sudan, Niger, Israel/Palestine). Much of this instability remains, and reinsurers are paying close attention to areas of conflict.

Hull war rates and war liability rates are beginning to level off following recent increases.

• Due to escalating tensions in eastern Europe, the recent fighting in Sudan, and reduced market capacity, hull war rates rose and aggregates applied in 2023 following increases imposed by reinsurers.
• We are beginning to see a slowing down of hull war increases.

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 capacity is stable, and insurers show a continued emphasis on technology-based risk differentiation. The space insurance market narrative is still driven by 2023 and 2024 losses and results:

• The market is currently reacting to unfavorable recent underwriting results since the beginning of 2023.
• Premium rates have risen, but capacity requirements are a critical piece of space placements.
• Despite the loss of a few markets or syndicates, the market still contains the available capacity to support most risks in the market.
• Underwriters show a continued emphasis 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.

Disclaimer

Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).