High rate rises for general aviation insurance buyers have become “a thing of past” as we enter 2022, with rates continuing to soften, according to A J Gallagher.
In its latest quarterly update for the aviation sector, A J Gallagher said rates, which ran high through 2020 and into 2021, started to fall back in favour of buyers during last year as capacity and competition increased. It added that some buyers could even see rate cuts on 2022 renewals.
“Our outlook for 2022 will see the return of rate reductions for those risks that are profitable and have a good reputation,” said Matthew Trundle, divisional director of Gallagher Aerospace.
But even accounts with losses or large limits are likely to see more favourable rates than at last renewal, he added.
A J Gallagher said premium levels have remained stable in the general aviation market compared with other sectors, while underwriters have improved profitability given rate increases and lower losses.
“The focus of insurers now seems to have shifted towards retention and growth, a positive factor for general aviation insurance buyers,” Trundle said. He added that “the market is now trending in the right direction for buyers again”.
Nigel Weyman, aerospace global executive at Gallagher Aerospace, said this will create more stability in the market this year. But he warned that the return of capacity and competition created a “feast or famine” scenario, with surplus capacity for good risks driving down rates, while loss-making accounts saw insurers stand their ground.
Weyman said the most popular risks attracted 15% to 20% additional capacity at renewal in 2021.
Low losses last year, combined with below pre-pandemic aviation activity and minimum premiums, are likely to have made for a “very profitable year for insurers”, Weyman said. But he warned of a “fool’s paradise”, with losses likely to pick up in line with increased aviation activity. “Things may not be as benign as they may initially appear,” he said.
Weyman said there is a risk that underwriting restraints will return to market to halt softening rates “or worse, possibly attempt to increase rates again” if loss levels return quickly to pre-pandemic levels.
“We need a period of low loss activity as airlines gradually bring operational levels back to normality. If this happens, then insurers can build on the natural growth in the business to harvest more premium and keep their books balanced. If loss levels are high however, then panic may set in, capacity will tighten and the fight will be on,” Weyman said.
General aviation capacity has also recovered after underwriter exits in the years before 2021, which reduced lead options for buyers and pressured prices. A J Gallagher said several new markets entered the space last year to boost competition.
“By the fourth quarter, all but the most challenged risks were in the position where there was sufficient, if not excess, capacity available at renewal. This was a key factor in the overall softening of rates seen in this sector,” A J Gallagher said.
Capacity has been buoyed by increased appetite for hull and liability risks in 2022, with the potential for further new entrants, Trundle said. But he added that capacity is largely dependent on buyers’ loss history, which will leave some facing continued capacity challenges this year.
Trundle said although general aviation is less exposed to large market losses, severe weather claims are rising. Two hailstorms in 2021 damaged multiple aircraft, while last month’s tornado in the US damaged a dozen aircraft, as well as hangars. In 2020, a tornado at a Nashville airport cost $100m in claims for damage to 90 aircraft.
“For general aviation clients, having a thorough understanding of your risk, location perils and having appropriate risk procedures in place is critical to helping mitigate against losses,” Trundle said.
Premium increases are still pushing through for aerospace infrastructure buyers, however. But Paul Wrenn, partner at Gallagher Aerospace, said rate increases have moderated and insurers have shown flexibility as clients look to rebuild in the pandemic.
“This is a step change from 2020/early 2021, when many insurers were prepared to walk away from any risk, regardless of its quality,” Wrenn said. This promises to create a more stable market in 2022 and swing things more in favour of buyers, he added. But unlike general aviation, “we remain some way off from a return to a soft market”, he said.
Rates for space risks surpassed A J Gallagher’s predictions of more stable conditions in the second half of last year and saw downward pressure, particularly for launch and in-orbit risks. The broker thinks this should continue into 2022.
Peter Elson, CEO of Gallagher Aerospace, said space underwriters have been focused on geostationary launch risks, which inject the majority of premium into the market.
Space losses for 2021 tracked 2020. A J Gallagher said its sources are predicting a small profit for the market and healthier bottom lines for underwriters without exposure to the Sirius SXM7 loss early last year.