ED LOUTH: So I think we have been living through a period of relatively abundant capacity for the last two or three years. Following the COVID pandemic, there were a series of strong results in aviation, and that has attracted new entrants to the class. That led to some softening in pricing, and I think through to the end of last year, we were seeing rate reductions quite commonly on placements.
With the advent of a new year and some tragic losses that we suffered in January and February, that trend has started to reverse somewhat and we have had a notable exit from the aviation class at the start of this year in Swiss Re, who have elected to cease writing direct aviation opportunities. So we could be at something of a turning point at the moment.
BECKY CHAPMAN: So could we elaborate slightly more on pricing? What do we see happening over the next quarter?
ED LOUTH: So I think the aforementioned claims have had something of an impact. I think that so far has been contained to the airline segment. Most of those claims have sat within the airline space, and arguably airline insurance was most challenged from a rating perspective. Depending on your view of the quantum of some of these claims, we are hearing quite commonly from insurers that they are already viewing the airline portfolio as underwater for 2025. Hence, their appetite to try and make some changes around rating.
Now, the market hasn't really reached a consensus of where they think those rates should be just yet, but we have seen a stop to reductions. We are seeing a demand for positive rate increment on renewals. But the normal underwriting process is underway. So clients with exposure growth and good claims records are being treated more favorably. Clients who have reducing exposures or a poor claims record are receiving higher increases from the market as it stands.
At present, we haven't really seen that contagion move into the aerospace sector or to the GA (general aviation) market, where conditions have continued broadly flattish, plus or minus 5% in terms of rate, which is broadly where they were at the end of 2024.
BECKY CHAPMAN: So moving on now to coverage, are there any types of coverage that are being contested currently in the market? I know automatic termination language was quite a hot topic last year. Is that continuing?
ED LOUTH: So with automatic termination, there still is a reasonable level of divergence in the market. There are two broad schools of thought, one in groups around the IUA coverage, which provides up to a seven-day cancelation period. But there is a proportion, a minority proportion of the market who are wedded to the global 191 clause, which allows for 48 hours continuation of coverage post-detonation of an atomic weapon. That battle is still going on. We are still making treatise on behalf of our client to those insurers, and we would hope that we reach some level of equalization.
I think in terms of coverage, we are starting to see people discussing higher limits. So really, the cap within a commercial airline policy since probably 2008 has been around $2.25 billion. We have seen some appetite for clients to explore higher limits than that. Partially, that's driven by inflationary pressures. Obviously, the value of a dollar is a lot less today than it was 17 years ago when these limits were set. But there have also been concerns raised about the size of some of the awards, particularly in difficult jurisdictions, such as America, whereby people feel it may be prudent to explore buying a higher limit or more insurance.
I think outside of that, really, the product has remained fairly consistent. The caveat to that would be the legal action, which is associated with the claims resulting from the loss of the aircraft fleet in Russia. That is currently being litigated through court. We're not quite sure in which way the jury and the judge are going to find or award liability in those cases, but it's highly possible that we will get some judgment this year.
And following on from that, or downstream from that, there will be an appetite either from the clients, the insurers, or both to seek some clarity around how those wordings operate to ensure that coverage is clear and everybody has an opportunity to price for the risk that they're now running in light of the resolution of those cases. So that is something we're keeping an eye on for 2025.
BECKY CHAPMAN: And are there any other comments you have on overall market conditions or things to look out for in the year ahead?
ED LOUTH: So I think the one risk that we're focused on really and in discussion with clients around is obviously we know the losses which have happened, but the market is quite fragile currently. I think the fact that a big player and a big brand name such as Swiss Re has left the space would probably lead you to conjecture about what other insurers figures look like. It's unlikely that Swiss Re have a significantly different set of results to other aviation insurers.
And that means that, one, there is potentially some vulnerability in terms of the capacity there and we may see further withdrawals. But two, we could be preceded by events here were there to be another significant loss or series of claims. There's a long time left to run in the year. And I think there is more than a reasonable chance that we will see another loss at some stage, and that could result in a sharp reaction to that, depending upon the size and the nature of any claims activity which occurs.
BECKY CHAPMAN: Well, thank you, Ed, for participating on this episode of the Marketplace Insights podcast, and we look forward to seeing you all on the next one.
NARRATOR: Thank you for joining this WTW podcast featuring our latest global market commentary. WTW offers insurance-related services through its appropriately licensed and authorized companies in each country in which WTW operates. For further authorization and regulatory details about our WTW legal entities operating in your country, please refer to our WTW website. It is a regulatory requirement for us to consider our local licensing requirements.
The information given in this podcast is believed to be accurate at the time of publication. This information may have subsequently changed or have been superseded and should not be relied upon to be accurate or suitable after this date. This podcast offers a general overview of its subject matter. It does not necessarily address every aspect of its subject or every product available in the market, and we disclaimer all liability to the fullest extent permitted by law.
It is not intended to be and should not be used to replace specific advice relating to individual situations, and we do not offer and this should not be seen as legal, accounting, or tax advice. If you do intend to take any action or make any decision on the basis of the content of this podcast, you should first seek specific advice from an appropriate professional. Some of the information in this podcast may be compiled from third-party sources we consider to be reliable, however, we do not guarantee and are not responsible for the accuracy of such. The views expressed are not necessarily those of WTW. Copyright WTW, 2025. All rights reserved.
