Aviation market calm but tougher conditions expected in 2024

Aviation insurance rates are currently stable thanks to healthy market capacity but there is mounting pressure, and equilibrium this year is likely to give way to tougher conditions in 2024, according to WTW. In its Q2 2023 airline insurance market renewal outlook, the broker says: “It seems likely that despite readily available capacity currently, underwriters will potentially be looking to move away from distressed lines of business over the next 18 months. This could well mean a sudden, and costly, reduction in capacity and mean that 2024 paints a markedly tougher picture.” It notes that there are several evolving factors that are influencing ongoing negotiations, not least wider economic considerations, as well as the crisis between Russia and Ukraine and reinsurers restricting coverage and increasing rates. “As a result, there could be a significant gap between where aviation underwriters need market-pricing to be and where airlines would like it to be. This is likely to mean that negotiations in the aviation insurance market will be challenging for the rest of 2023. The current level of capacity will help, but conditions have the potential to deteriorate during 2024 as capacity becomes more constricted,” says WTW. It notes that the seizing by the Russian government of hundreds of aircraft that had been leased to airlines in the country has potentially created one of the largest claims in the history of aviation insurance. This has forced a complete reappraisal of pricing for hull war, which for a long time has been treated as a low-spend ancillary part of an airline insurance programme. The changes in the reinsurance market means that direct insurers will have to err on the side of caution in their insurance pricing, deployment of capacity and breadth of cover to manage the expected pricing and coverage changes on their 2023 reinsurance programmes, according to WTW. Amid all the challenges, the airline hull and liability market is relatively calm, at least for now, says the broker. But it adds that insurers face a spiralling cost of business challenge that is going to take some time to come under control. “There is enough capacity in the aviation insurance market to create competition for a well-managed aviation insurance programme that presents its risk positively, but some insurers may find themselves struggling to meet their underwriting targets and as a result may look to reduce their presence in the market as the year progresses,” says WTW. It adds: “Assuming the potential leasing claims in Russia continue to sit unresolved in the courts this could mean that the market will be relatively level for the rest of 2023, but while the market is buyer-friendly in terms of value in the short term, the complex factors facing insurers make market-pricing uncertain in the medium term. The more quickly insurers have to take large claim events into account on their balance sheets, the more likely there will be a reaction.”

Aviation market calm but tougher conditions expected in 2024

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