A divided market
The airline insurance market is in a state of flux, divided between new entrants that are eager to establish their position, and legacy insurers balancing the need to remain competitive against the reality of long-term portfolio underperformance.
Trying to predict market behavior is always a treacherous endeavor, but this article seeks to provide context and clarity around current market direction.
The early April airline hull and liability insurance program renewals are often a signpost to insurers’ aspirations for the balance of the year. This is perhaps more pronounced in 2025 than in previous years, as the renewals highlight the challenge faced by insurers who are seeking to quote rate increases against the backdrop of relatively high capacity.
Insurers with longer-tail business in their portfolios are under significant pressure as old underwriting years deteriorate beyond modeled parameters and legacy losses start to bite. There are still notable open claims dating back to 2018 that are currently being finalized. These historic claims could influence insurers’ current balance sheets and underwriter behavior simply because it is not possible to apply retroactive remediation, and this could suppress their appetite for airline business more widely.
Newer entrants, perhaps drawn to the market by the relatively benign level of claims activity during the pandemic and facing a less complex aviation portfolio dynamic, are potentially faring better. Without exposure to the historic airline claims, these insurers’ strategies are more likely to be geared toward growth, because from their perspective the current rating levels are adequate.
That said, many insurers will be under significant pressure following the spate of aviation losses at the end of 2024 and in early 2025. These losses put the airline sector, and indeed the entire aviation industry, into the spotlight, with both the airline all risks and the airline hull war classes coming under scrutiny from insurers’ senior management. This is directly influencing insurer appetite and reinforcing underwriting discipline and resolve to seek rate increases.
The interplay of these competing issues, appetites and circumstances on insurers makes placements less predictable and, in some cases, creates a two-track market with the ambitions of new entrants tempering the efforts of legacy insurers to increase rates. There is little doubt though that negotiations are more challenging now than they were 12 months ago.
The claims position is further complicated in that while major claims were trending down before the end of 2024, the cost of attritional or minor losses has been rising for some time. Modern airframes are now mostly built from composite materials, which are far more expensive to repair than traditional materials such as aluminum.
A key challenge is the related supply chain and availability of workshops equipped with the hardware and trained staff to complete such repairs. Using modern materials and manufacturing processes undeniably makes flying safer and more efficient for both passengers and crew. However, the cost of repairing or replacing parts when there is a minor incident is considerably higher than it would have been a couple of decades ago.
In addition to material costs for hulls, supply chain deficiencies and high engine values are also driving much higher repair costs for non-major claims. According to WTW observations, minor events that previously may have cost less than $5 million to remedy are now estimated to have the potential to lead to claims exceeding $20 million. Many insurers are thought to be reconsidering the loss amount that would fall within the definition of ‘minor’ or ‘attritional’, but this hasn’t yet flowed through to general remodeling or recategorization of attritional loss value thresholds.
Meanwhile, businesses globally face a less certain outlook as economies come to terms with the rapidly evolving international business landscape, which will have implications on an already strained global supply chain. From an aviation industry perspective, this is unlikely to ease the trend of rising repair costs. Aircraft parts and components are manufactured across the globe, and it would not be unusual for a European aircraft to need repair in the U.S., or a U.S. aircraft to need repair in Asia, and they would need replacement parts, which could be subject to tariffs.
Another issue that has been influencing market sentiment and appetite over the last few months is the Russia leasing claims. It appears that some of these cases are close to being resolved,[1] with confidential settlements being favored by some insurers.[2]
While the cases being settled prior to the conclusion of the legal processes may immediately sound positive, the reality is that the legal process is extremely expensive for all parties involved, not just insurers, and the increased visibility within insurer organizations will emphasize the expectation for improved underwriting discipline from senior management teams.
It would be hard to argue that the airline insurance market is in rude health, but in the interests of balance, it’s interesting to note that Lloyd’s recently released its 2024 full-year results, which included an 86.9% combined ratio.[3] A combined ratio brings together an insurer’s incurred losses and their expenses against the premium received; if it is greater than 100% the insurer is unprofitable, but if it’s below 100%, then the insurer has received more in premium than it has spent on claims and expenses, which keeps its ledger in the black.
This would suggest, albeit simplistically and notwithstanding their expressed aspiration for rating uplift, that insurers should be able to weather the storm in the aviation market.
The challenge however, is that according to the Lloyd’s report, the MAT (Marine, Aviation, Transport) sector has a combined ratio of 104.3% after making an underwriting loss of $195 million (£152 million) despite gross written premium income of over $5.8 billion (£4.5 billion).[4] This is on the back of a marginal 99.1% combined ratio for 2023, and suggests strains in the underlying portfolio.
Senior leaders at Lloyd’s are said to have recently voiced concern about the adequacy of aviation underwriting pricing. It’s been seven years since Lloyd’s imposed restrictions on syndicates operating in some poor-performing sectors in an effort to turn around inadequate results and protect the Lloyd’s franchise. If they adopt a similar approach in 2025, the ramifications could be significant.
Furthermore, the withdrawal by Swiss Re from the aviation insurance sector highlights the difficulties facing insurers during this phase of the market cycle.
Swiss Re may be the only insurer to have pulled out of aviation during the current phase of the market, but other insurers are issuing candid warnings to brokers and clients about the corrective changes to their portfolios that they feel are needed. Indeed, in some cases, this is being mandated by senior management. Withdrawing capacity from renewals and declining to participate at current pricing on new business indicates a definite shift in the market. Moreover, underwriters are under pressure from their senior management teams to exercise more discretion, differentiating between accounts with good records and being tougher on those that are distressed.
A successful insurance renewal requires interaction between underwriters, brokers and the insurance buyer. Given the challenging overall economic conditions and the specific issues facing the aviation insurance market, we recommend early and proactive engagement with brokers to manage the renewal process with insurers. More so than usual, this will increase the likelihood of a positive renewal outcome. There is still room to negotiate positive deals for buyers with a healthy claims record that can demonstrate a well-defined and implemented strategy for risk mitigation.
