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Aerospace Practice Market Review

Q1/Q2 2022

Aerospace
N/A

July 22, 2022

Softening of the market continues, although in Q1 and Q2 of 2022 insurers were still pushing for premium increases (+5%), flat renewals were achievable where there were no new losses or deterioration.

In 2020, and Q1 of 2021, we saw aggressive price increases following a few years of loss-making results, with aviation insurers under pressure from capital providers to return to profit. However, new market entrants, increased appetite from existing insurers and the downturn in exposures due to COVID-19 has made these price increases difficult to justify and has increased competition for desirable business, which has led to a deceleration of movement within the market conditions.

However, it is very challenging to anticipate the direction the market will take and when a shift might occur, therefore our advice would be to those renewing to engage with their team early to get terms and support secured.

Our market review explores quarterly comparisons of average premium change from 2021 to 2022 and anticipates the trends that could continue in 2022.

Market direction

Whilst the shadow of the Russia/Ukraine crisis looms over the Aviation insurance market, aerospace organisations renewing in 2022 have so far avoided any impact to their programmes.

The following updates are provided as a view of what was seen in Q1/Q2 2022 until the 1st of May renewals. We believe this will continue into the next couple of months however it is clear this could change at any time.

As such, our advice would be for those renewing to engage with their team early to get terms and support secured, as it is very challenging to anticipate the direction the market will take and when a shift might occur.

Premium increase

Premium increase

Prior to the 1st of May, insurers were still pushing for premium increases (+5%) however, flat renewals were achievable where there were no new losses or deterioration.

Improved profitability

Improved profitability

This has come following 2 years of improved profitability for insurers, encouraging growth in capacity, which has led to a deceleration of movement within the market conditions.

Larger shares on desirable risk

Larger shares on desirable risk

A few insurers see this as an opportunistic moment to seek larger shares on desirable risks, which is having a stabilizing effect on the pricing of such risks.

Market capacity

During softer market cycles, when lineslips proliferate and underwriters are amenable to broker requests, the need for headcount wanes significantly as workloads can be managed quite readily in such a trading environment. When the pricing environment hardens, as is currently the case, the market frequently finds itself short on headcount.

As such we have seen over 40 London underwriters change employers during the last two years, and this “shuffling” looks to continue as gaps remain unfilled and new entrants seek to employ underwriters to fulfil their portfolio and income ambitions.

Most insurers are currently adopting a cautious approach to their portfolios and this has led to either a physical reduction in capacity (insurers exiting certain sectors of aviation risk), or has led to a reduced appetite (a reduction in the deployment of capacity). As a result of this pricing is remaining level in certain areas but more commonly increasing in the majority of cases.

Russia/Ukraine: Is a storm brewing for the aviation insurance sector?

Whilst aerospace isn’t immediately affected by the current crisis in Russia and Ukraine, it is anticipated there will be an impact on pricing as the situation evolves. Underwriters try to keep separate the discrete portfolios that comprise aviation insurance, but the overall size of the premium pots and the scale of the potential losses from such an event would mean this loss would need to be “mutualised” amongst the wider aviation portfolio, and thus all aviation premiums would increase.

Losses from Russia and Ukraine could total USD10bn-11bn to the aviation sector1.

Loss estimates

Loss estimates

The loss estimate is much greater than the 9/11 loss, and would impact insurance pricing across the aviation portfolio.2

Current impact

Current impact

The current Impact is limited to Contingent and War (XS52, Hull War) risks however an imminent change is anticipated, with other sectors in aviation being affected.

With the current market volatility, which varies by sub-sector and region, more than ever we advocate early and continual engagement with your service team, coupled with the application of our data driven analytical capabilities to deliver optimum results.”

Darren Porter | Managing Director, Aerospace WTW

Reinsurance market pressures: An unexpected shift?

  • There is the spectre of a (significant) loss to reinsurers, but nothing presented and considered covered at this time, so the 1st April renewals were transacted without much pricing change, albeit there was a loss of capacity.
  • Rising costs of reinsurance following the B737 Max losses was anticipated to impact pricing for direct buyers, but that impact didn’t materialize in 2021.
  • There are however factors that could affect the current stable environment;
    • If the Allied Aviation loss does not reduce on appeal, could this see reinsurance pricing impacted?
    • As insurers renew their reinsurance programmes post Russia/Ukraine, will we see pricing ambitions change or coverage be restricted on for Aerospace clients?

Footnotes

1 https://www.theinsurer.com/news/fitch-insurers-facing-possible-10bn-hit-from-russiasseizing-of-aircraft/21726.article

2 https://www.iii.org/sites/default/files/TerrorismThreat_042010.pdf

Disclaimer

Willis Towers Watson offers insurance-related services through its appropriately licensed and authorised companies in each country in which Willis Towers Watson operates. For further authorisation and regulatory details about our Willis Towers Watson legal entities, operating in your country, please refer to our Willis Towers Watson website. It is a regulatory requirement for us to consider our local licensing.

Contacts

Region Manager - Aerospace North America
Willis Towers Watson

Richard Hiney
Vice President, Global Aerospace - North America

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