Aviation rates harden but industry profits hang in the balance for 2020, says Gallagher

Covid-19 could act as a catalyst for future rate increases in aviation insurance and accelerate the upwards trend already in play, according to a market briefing from Gallagher. Aviation rate increases are expected to continue into 2021, the broker said, and pressure on capacity will strengthen insurers’ resolve. The aviation insurance bottom line, however, hangs in the balance. “It is still entirely feasible that 2020 could become another consecutive loss year on a premium-versus-claims basis,” Gallagher said. With total industry losses from Covid-19 estimated at $107bn, Gallagher said the direct claims impact on aviation insurers will be relatively small as pandemic losses are not covered by traditional aviation insurance. But Gallagher added that the pandemic is still having a major impact on aviation insurers, with aviation one of the industries most impacted by Covid-19 and restrictions on travel. “The damage done will take some years to recover,” Gallagher said, as passenger numbers are forecast to decrease and insurers brace for a drop in overall premium income. At the mid-point of 2020, Gallagher said losses look healthier than last year, but it warned the industry not to assume reduced operations will boost year-end figures. As well as the potential for a major event before the end of 2020, Gallagher said attritional claims could spike as operations are restored and fleets are dusted off, while larger numbers of aircraft on the ground will remain a higher risk than usual until operations are back up to full scale. “With many airports accommodating larger numbers of parked aircraft, terror risk, malicious acts, wildlife hazards and or extreme weather events such as a hurricane or typhoon will continue to pose a considerable threat,” Gallagher said. Gallagher said insurers have responded “sympathetically” to the Covid-19 challenges on aviation buyers’ liquidity and operations. Gallagher said it has negotiated premium adjustments and returns, reductions in deposits and instalments, and various payment extensions and deferrals to help clients through the crisis. However, it said not all were as forgiving. “A select few insurers have disappointingly been less flexible in their negotiations and response, or attempted to introduce Covid-19-related policy exclusions. Fortunately, the majority have reacted positively,” it said. Remote working has also meant longer response times from insurers, although Gallagher said on the whole the industry has responded well to both increased workloads and the challenges of working from home. Four underwriters exited the aviation market in the second quarter of 2020, including Cincinnati Global Syndicate 318, Antares, Trust Re (for facultative aviation) and Starstone International, which has gone into runoff. Rokstone Underwriting entered the ring, writing aviation business using the security of Best Meridian International. Gallagher said it has heard of potential new players for the fourth quarter of 2020 but it is as yet unknown whether they will write aviation business. At the same time, existing players will want to take advantage of any potential rate hardening and some players have begun to raise capital in preparation.

Aviation rates harden but industry profits hang in the balance for 2020, says Gallagher

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