Divided aviation insurance market with rate increases but new capacity
The aviation insurance market is “somewhat divided” according to Marsh Specialty, noting that rate increases due to the ongoing geopolitical volatility are already attracting additional capacity.
Garrett Hanrahan, global head, aviation and space, Marsh Specialty, says in the broker’s Aviation Insurance Market Overview Q1 2023 that 2022 was a challenging year for the aviation industry as multiple disruptive factors combined to impact business models and strategies.
“The consensus emerging in Q1 2023 is that some of the pre-existing uncertainty within the industry is subsiding. However, with new capacity looking to increase market share, we are left with a somewhat divided market. While some legacy leaders want to maintain the rating and premium income, additional capacity in the market is providing new differentials and suppressing rate and premium increases on the all risks policies.”
He says that as long as this increased capacity persists, it will likely play a key role in determining the extent of any future rate rises across the industry. “Due to ongoing geopolitical volatility, the War market presents its own challenges, with some insurers withdrawing and driving rate increases. However, these rate increases are already attracting additional capacity and we are starting to see increased competition in early 2023. This sector largely depends on exposure and loss history so it remains a somewhat fragile marketplace,” he notes.
For the London airline insurance market, the report says that some uncertainty persists around aviation insurance market conditions. “Increased reinsurance costs, retentions, and coverage restrictions have the potential to lead to a reduction in capacity. Should this occur, the impact of reduced capacity available to clients may result in premium increases and further narrowing of policy terms and conditions,” it states.
It says airline exposures continue to increase as airlines reopen routes and passenger traffic returns to normal, providing premium growth for insurers. Attritional incidents are increasing as flights and passenger numbers go up, resulting in a rise in exposures leading to higher loss activity. Losses emanating from the Russia-Ukraine conflict remain somewhat unresolved, says Marsh.
“Rating conditions in the airline market are largely split. Market leaders appear to want to increase technical ratings on principle, while some new and increasing capacity work to obtain market share by undercutting leaders. As a result, competition remains strong among insurers, resulting in the majority of placements improving results,” the report states.
According to Marsh, many insurers in the London aerospace insurance market argue that the aerospace premium base needs to increase. “Different approaches to achieve this are emerging. Some insurers remain on a growth trajectory, looking to increase their premium base by participating on more accounts, in many cases with larger line sizes. Other insurers are seeking to extract rate increases without accepting additional exposure into their portfolio,” says the report.
The first quarter of 2023 saw a continuation of new capacity entering the market either by way of genuine new entries or increased line sizes and appetites. “As long as this persists, new capacity will act as a restraining factor on underwriters’ aspirations for increased premiums. In addition to traditional risks, we are also seeing increased insurer focus on the emerging advanced aviation technology sector and ESG factors when deploying capacity,” Marsh notes.