A Q4 conundrum for airline insurers
The question facing insurers in the final quarter of 2025 is should they stick or twist in their Q4 renewal negotiations? There’s a delicate strategic balance to be struck between securing rate increases and the risk of losing out on business. Airline all risk insurers need to fulfill their business plan obligations and maximize their purchase of reinsurance (which comes with minimum premium income requirements). As a result, the debate around perceived insufficient market premium income may be pushed into 2026.
As we came to the end of 2024, 2025 was forecast to be a year for reduced airline rating. A few years of underwriting profitability, a gradual build up in available underwriting capacity and a lack of major incidents suggested that airlines might have a relatively strong negotiating position.
Then the losses began. The Jeju Airlines loss[1] was at the end of the 2024 calendar year, but for several insurers it was presented in their 2025 year of account because of reporting cut-off dates. This was followed by significant events for carriers including Air Busan,[2] American Airlines[3] and Air India[4] during the first few months of 2025.
More recently we have seen two cargo losses. The first was Hong Kong[5]. While this incident is unlikely to be expensive from a hull value perspective, the salvage and wreck removal process will add to the annual airline claims total, exacerbating insurers’ concerns.
At time of writing, details are still being confirmed, but there will be liability claims on the ground following the second cargo aircraft incident in Kentucky.[6] It is doubtful that this will have major implications on airline insurance negotiations for all insurers (depending on their own loss position) but it will certainly be a factor for those that have picked up yet another loss.
In addition to the high projected total value of these incidents, the average annual cost of attritional airline and aerospace claims is estimated by WTW’s aviation team to be somewhere between $850m and $1.15b, depending on qualifying metrics, claims trigger thresholds and quantum.
With a relatively large number of incidents and the value of attritional claims continuing to be high, the mood in the airline all risk insurance market changed. Despite excess insurer capacity, the rates were deemed inadequate and the series of losses supported what some insurers had been saying for a while: total global airline premium income was insufficient to support the average annual losses, pay for insurers’ operational costs and enable them to return even a modest profit for capital providers and shareholders.
As a result of the losses in the early part of 2025, some all risk insurers attempted to increase rates. The abundance of capacity in the market brought competition and uncertainty which meant that some were more successful than others.
Insurers that were too bold in their ambitions or rigid in rating requirements either had their participation reduced or lost their share entirely as competition minimized meaningful rate increases. Despite insurers’ ambitions, some airlines renewing in Q2 and Q3 attracted minimal upward rate adjustments.
Uncertainty prevailed as insurers tried to figure out what they could achieve as part of the bigger capacity challenge. In some cases, they took what they could, deciding that they would wait for the final quarter in the hope of more meaningful rises.
Even the exit of a major European insurer from primary aviation insurance couldn’t change the market direction, perhaps suggesting that the glut of available capacity had reached a point that diluted the influence of even the largest organizations.[7]
Insurers have their own pressures. They need to surpass premium income minimums required by their own reinsurance programmes to prove value and justify the cost of their reinsurance purchase, and this is sometimes a catalyst for even more intensive competition in the final quarter of the year. From what we have seen so far in Q4, competition remains dynamic and price rises continue to be suppressed, although consolidation among insurers is moving up the agenda, with decisions made away from the airline insurance market potentially having an influence on the amount of available capacity in the future.
It should be pointed out that rates have increased as 2025 has progressed, just not to the levels or at the pace that many insurers wanted.
With negotiations well under way for the final quarter when around 70% of total annual airline hull and liability premium is estimated to be placed, the market is in a delicate position. Any more major claims and, regardless of market capacity, insurers might find it hard to accept the lower single digit rate increases that have been achieved on some airlines that presented lower policy limits, clean loss records, and credible risk management strategies. In the absence of further losses though, insurer competition is likely to minimise the scale of rate increases across the sector and potentially push those negotiations into 2026.
The reality is that between 2021 and 2024, the airline book appears to have been broadly profitable for airline insurers, so there may be an opportunity to treat 2025 as a one-off, an “annus horribilis,” where previous results and current competition combined to suppress rate increases. If capacity remains buoyant, then this might be insurers’ only hope. It’s worth noting that claims activity doesn’t directly reduce underwriting capacity because not all insurers are involved in every claim, either as lead or following market.
It is sometimes said that it’s better to be lucky than good at airline insurance. Airline all risk insurers might have needed to be both lucky and good to have met their underwriting targets from the airline portfolio in 2025. As the year draws to a close, insurers will be hoping that they have success in increasing the combined annual premium to a level that they deem equitable.
As it stands, most insurers insist that they can’t make money at current rating levels. While there were several significant incidents in 2025, insurers still feel that the market is not balanced even in average claim years. The profitable post-COVID-19 years seem to be in the rearview mirror as losses increase, frequency rises and costs climb. The usual story of claims inflation and the increased costs of parts and repair are adding to the claims issues and exacerbating insurers’ woes.
For now, rate increases seem likely to be constrained in the most part, but it should be noted that the most challenging negotiations are likely to involve airlines with heavy claims profiles, very high-value aircraft, or very large liability limits – all items that challenge the market from an available capacity standpoint. Operators of narrow body aircraft who purchase lower liability limits are likely to fare better as these policies don’t test the limits of market capacity.
The question remains, though, is this postponing the pain until next year or will capacity dictate that rates will continue to be held back in 2026?
Complicating the outlook though is the reinsurance renewal process that is underway for placements that incept in January 2026. Reinsurers have made it known that they are looking for direct insurers to remain firm or they could take penal action on treaty reinsurance programmes that incept from January 2026 to force direct insurers to push for rate increases. At the same time however, several reinsurers have reported strong figures as a result of light losses in other markets, which could influence their strategic positions.[8]
This creates a difficult challenge, because the reality of a competitive marketplace is that excess capacity is pushing in one direction and pressure from reinsurers, as well as their own senior leadership teams, is pulling in another.
Meanwhile, the war and terrorism market appears to be trading differently. Following the judgment on the widely reported lessor claims related to the Russia/Ukraine crisis, observers wondered how the insurance community would react. It turns out that the claims were settled relatively quickly, and the market got back to business, undeterred by an influx of new capacity.
The hull war and excess liability war sectors continue to soften following several years of increased rating. Abundant new capacity, mostly unaffected by the Russia/Ukraine claims, mean that WTW estimates suggest that the established insurer panel are having to cut rates by more than 10% for hull war and up to 10% on the excess war liability covers. In some cases, we’ve seen more significant reductions, depending on the specifics of an airline’s exposure and coverage requirements.
Coverage for Russian operations also seems to be stabilizing. Airlines that continue to serve Russian cities now have greater flexibility on their structured coverage, although cost implications and coverage restrictions still exist.
All in all, 2025 has proved difficult for airline insurers. Claims have been frequent and costly, abundant capacity has restrained the increased rates and premiums deemed necessary and now the insurers own cost of business is likely to increase in 2026 as they renew their reinsurance programmes. Getting out of 2025 without any further losses and their portfolios intact remains the immediate goal – working out a sustainable strategy for 2026 will be the next challenge.
