Except for war coverage, the market remains stable as insurers take a measured “wait and see” approach to the potential impact of Russia’s confiscation of aircraft.
Rate predictions: Aerospace
-10% to flat with fleet growth
Airline hull war
+100% to +250%
Airline excess war liability
+50% with multiples for hull war
Products manufacturers and service providers
+5% to +10%
Airports and municipalities
+5% to +10%
+5% to +10%
Rate changes depend on risk and limit; percentage range not applicable
With exposures bouncing back, plenty of capacity and below-average claim activity, the rating should be stable going into 2023.
Insurers are looking to grow and compete for premium income.
Exposures have bounced back, although with some regional variations.
Rating is already at high levels.
Markets show two years of profits.
However, reinsurers could tighten their costs should war claims spill over to the H&L market.
Hull war and excess war liability, premium and rating
The Russia/Ukraine crisis and resulting sanctions have produced catastrophic claim activity for the hull war market.
The current market premium is completely inadequate to support the claims.
Rates are going up 100% to 250% across the board.
Coverage and aggregate limits will be impacted.
Reinsurers are driving the rating activity; several large insurers have pulled out completely.
Opportunistic markets have entered/will enter the market, which should stabilize the market in 2023.
Hard market conditions prevail with increased emphasis on geographic aggregation of assets; hull war sub-class remains highly volatile. The impact of sanctions on Russia could lead to an unprecedented aviation market claim with insurers being exposed to previously unquantified hull exposures. Preliminary expectations for total industry losses range from $10 billion to $20 billion and, while the uncertainty of the overall loss magnitude continues, risk perception has already shifted for both direct and reinsurance markets. The historical premium base for this class has been low and, with losses concentrated in this class, this will lead to disproportional cost increases.
Insurers continue to assess exposure and liabilities to Ukraine, Russia and surrounding areas. Combined impact of the Ukraine crisis and developing airline assets held in Russia are expected to have a far-reaching impact on this class.
Increased claim activity has continued (this in addition to prior-year losses developed from many repossessions).
Insurers remain focused on geographic aggregation of assets and broader geo-political perils.
Overall market capacity remains adequate following several withdrawals; insurers begin to introduce sub-limit(s) and cover limitations with focus on aggregation.
Increased underwriting oversight from insurer senior management; insurers’ own reinsurance renewals expected to further restrict and limit coverage.
Volatility within hull war rating can be tempered if confiscation etc. (paragraph (e) perils of wording) are excluded, the market is very distorted, and a “balance” remains to be found on coverage and price.
Product manufacturers and service providers
While the shadow of the Russia/Ukraine crisis looms over the aviation insurance market, aerospace organizations renewing in 2022 have so far avoided any significant impact to their programs. It is very possible that this could change any time. Therefore, our advice for those renewing is to engage with their team early to get terms and support secured, as it is challenging to anticipate the direction the market will take and when a shift might occur.
Insurers are still pushing for premium increases (+5%); however, flat renewals are achievable where there are no new losses or deterioration.
This has come following two years of improved profitability for insurers, encouraging growth in capacity, which has led to a deceleration of movement in market conditions.
A few insurers see this as the moment to seize larger shares on desirable risks in anticipation of the market hardening once again, this time because of the Russian/Ukraine crisis.
The direct aviation insurers rely heavily on reinsurance, and reinsurers who were already smarting from the Boeing Max loss are looking closely at direct insurer exposure to Russia/Ukraine; we are seeing coverage restrictions being imposed — especially regarding hull war and war liability writebacks.
Underwriters will continue to push for some uplift in rates, while remaining focused on 12-month model-specific SIM pilot training as well as retaining their book of business.
Inflation and increasing claim costs remain a major concern for underwriters.
Underwriters are citing inflation as a main driver for an uplift in rates.
Supply chain constraints and labor shortage continue to increase the cost of repairs and aircraft down time, effectively increasing the total cost of claims.
The award on the Allied Aviation loss caused nervousness among insurers in Q4 of 2021 and served as a reminder of the potential for runaway jury awards in the U.S.
New capacity is being deployed by new and existing markets, which is putting pressure on underwriters to offer more competitive pricing on larger quota share placements.
Underwriters are inclined to stay on current business and are not very aggressive on new business due to uncertainty in the market regarding potential increased reinsurance costs and Russia/Ukraine.
We have not seen any major changes in coverages and sub-limits, as underwriters have been closely reviewing and reducing these over the last couple of years; however, we have seen agreed hull values being reviewed both midterm and at renewal.
Environmental, social and governmental (ESG) stances of carriers continue to translate into more restrictive underwriting on risks that present an adverse picture on sustainability (e.g., older aircraft with less efficient/higher carbon emission engines).
Airports and municipalities
Aircraft and passenger traffic is rebounding in a post-COVID era, driving increased exposures on site. Also, large, and unique verdicts continue to keep the social inflation and nuclear verdicts fresh in carriers’ sights, leading to a general sense that pricing remains inadequate.
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.
There is a sense of a more competitive environment, though all markets are still seeking what they determine to be adequate rates.
Vertical placements (quota-share) are a good solution to engage capacity on larger-limit accounts and establish a more stable program for the future.
Since the rate corrections of 2019 – 2020, this sector has stabilized and embraced a more disciplined underwriting approach.
Risk differentiation is now based on limit requirements and technology-based risk variations.
Premium rates have remained stable over 2021 – 2022, with rate reductions only on risks with significant technical heritage.
The market’s annual premium income target remains $750 million, but it has not reached that target yet.
Annual market income has been hampered from 2020 – 2022 by pandemic-related project delays and supply chain issues.
New insurers/capacity have come into the market to replace exited/decreased capacity.
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).
Global Aviation and Space Industry Vertical Division Leader, North America