Aviation rate increases accelerate going into Q4 renewal, says Gallagher

Aviation clients face further rate hardening as the market enters its busiest time for renewals in the fourth quarter, according to Gallagher’s latest aviation report. The report says aviation rate increases accelerated in the third quarter, with the hardening trend to continue for Q4 renewals. Gallagher says it is possible that rate increases will accelerate further in 2021. “Considering the high volume of renewals taking place [in Q4], it is typically this period that will determine the year-end results for aviation underwriters and set the tone for the forthcoming year. With this in mind, all indications point to a continuation of the current market hardening,” Gallagher says in its Plane Talking report. Aviation insurers are focused on a return to profitability, particularly with Covid-19 losses affecting the broader insurance industry in 2020, Gallagher says. “Industry opinion still suggests that Covid-19 will [result in] one of the worst ever years for the insurance market,” it notes. But higher rates alone will not be enough to offset the impact of losses and lower premium levels for the aviation insurance sector, which has been heavily impacted by the pandemic, it adds. “Uncertain, unpredictable and changing exposures combined with continued losses, reduced income and economic factors are all exerting pressure,” says Gallagher. Covid-19 has affected all aviation clients and changed exposures. The broker says “it is clear that the aviation industry remains in a state of distress”, with recovery from the pandemic “slower and shallower than expected, undermined by the progress of the pandemic and constantly shifting government reactions”. Aviation insurers will take a “sizeable hit” to their premium pot from the pandemic, Gallagher continues. “Aviation is still among the worst-affected industries by the pandemic and the various premium relief measures, client defaults and reduced operations are all negatively impacting premium levels, despite the underlying upwards rating trend,” it says. Gallagher says the responses from some insurers to aviation clients have been “disappointing”. “Disappointingly, it must be said that a select few have been far less accommodating to negotiations and/or slower to react. At the start of the pandemic, these insurers adopted a harder standpoint, limiting their underwriters’ authorities and subjecting almost every renewal to higher management signoff,” Gallagher says. Although insurers “softened” their positions in recent weeks, Gallagher still expects renewal negotiations to be more complex than normal. Aviation insurance capacity shrunk in the third quarter, not least because ratings downgrades applied to General Insurance Corporation of India and New India Assurance Company took their financial strength ratings below the A- minimum threshold used by most brokers and buyers, explains the report. Gallagher says other insurers have made clear their intention to be more selective in the next few months and either limit their shares on certain contracts or exit certain territories or lines of business. At the same time, harder rates have attracted some new capacity to aviation insurance, including Rokstone and Hive Aero, which will expand into aviation hull and liabilities. Gallagher says new capacity does not offset overall lost capacity, but will help mitigate some of the pressures on buyers. The slowdown in air travel this year has kept losses lower than 2019 but Gallagher says there has been a steady flow of claims through to the third quarter, which recorded ground incidents across airline, aerospace and general aviation lines. “Despite reduced numbers of aircraft movements, the underlying risk inherent in aviation has not decreased and the costs of just a few individual losses can quickly mount up,” Gallagher says. Some of the losses from ground incidents are substantial, it adds. Air India’s Boeing 737 runway incident killed 18 passengers and two pilots. The loss of the Ethiopian Airlines Boeing 777 freighter to fire at Shanghai Airport “could become one of the most expensive hull losses in history” if it is declared a total loss, the broker explains. Before the pandemic, insurers had projected airline premium growth from about $1.6bn in 2019 to $2bn this year. But despite significant rate increases for clients, premium income for airline insurance is likely to be “significantly down” as widespread travel restrictions remain in place, says Gallagher.

Aviation rate increases accelerate going into Q4 renewal, says Gallagher

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