Air insurance buyers are facing some of the most challenging innovations in more than a decade, as rising exposures and the war in Ukraine are driving up costs, with some experts predicting the toughest conditions since 9/11.
With the easing of COVID-19 restrictions, the number of air passengers is recovering from the decline in demand during the pandemic, with growth strongest in Europe and North America. Globally, passenger numbers are expected to reach 83% of pre-pandemic levels this year, up from 47% in 2021, and return to 2019 levels in 2024, according to the International Air Transport Association.
Rising passenger numbers mean increased exposures for airlines and potentially higher premiums, despite a relatively stable rating environment. In addition, the aviation insurance market potentially melts large losses from the conflict between Russia and Ukraine, which puts prices, terms and conditions under pressure.
According to Peter Elson, CEO of Arthur J. Gallagher & Co.̵7;s Aviation Operations, aviation renewal is likely to be among the most challenging in decades in 2022. “We will see more attention to structure and the amount of coverage and price for coverage than ever before. since 9/11, ”he said.
The majority of the airline renewals take place during the fourth quarter and Mr. Elson said insurance companies are likely to be under pressure to raise prices.
“The airlines’ insurance market for all risks is relatively stable, but it is a worrying stability due to the expectations of claims arising from the Russia-Ukraine conflict. The all-risk market is waiting to see how the losses from Russia and Ukraine come through, where they will land and how their reinsurance program can be affected, he says.
Claims related to the war between Russia and Ukraine have been reported to the aviation market, which provides both all-risk and war coverage under separate aviation war policies to airlines, as well as conditional coverage for aircraft leasing companies. About 400 commercial aircraft leased before the war are still in Russia and may be impossible to repair.
In May, the world’s largest aircraft rental company AerCap Holdings NV announced that it would receive a hit of $ 2.7 billion after more than 100 of its jets ran aground in Russia. AerCap said it has filed a $ 3.5 billion insurance claim related to trapped aircraft and equipment and has already received $ 200 million in payments from insurance companies. Another lessor, Air Lease Corp., said in April that they would write off aircraft leased by Russian airlines worth $ 802 million and that they would try to recover losses from their insurance companies.
Despite the potential extent of losses, “abundant coverage” is still available in the aviation and war markets for aviation, albeit at a higher cost, Elson said.
The immediate effects of the war in Ukraine have been on the hull’s war capacity, appetite and pricing, said David George, flight manager at Marsh Specialty, a unit within Marsh Ltd. “We have already seen some major withdrawals from the market, which is puzzling given that no claims have been paid out as far as we know and prices are rising by about 100%,” he said.
Capacity is available for most airline investments, but the higher the aircraft value, the more it will be squeezed, George said. “Insurance companies generally maintain capacity in US dollars but now apply this to annual aggregate limits, not aircraft values. This will potentially limit placements and it appears that the units will be limited to three times maximum hull values,” he said.
The main airline insurance market has been competitive throughout the pandemic and has continued to provide broad coverage and stable rates, George said.
“These conditions attracted new players to the market and unlocked dormant capacity from existing insurance companies during the pandemic. Although interest rates have been artificially high, in many cases due to reduced exposures, there is a feeling among insurance companies that current premium levels are lower than those required to maintain profitability, he says.
Insurance companies are seeking various coverage restrictions, including geographic restrictions to exclude Russia, Belarus, Crimea and Ukraine, George said. “Some insurance companies indicate that they will not provide coverage for force majeure landings in these countries, which we consider to be an unreasonable position,” he added.
Prices in the aviation insurance market are likely to be driven by the aviation insurance market, which could see huge losses from the conflict between Russia and Ukraine, said Elson from Gallagher.
“The shape and direction of the market will be determined more this year than in previous years by what is happening in the reinsurance market, in particular reinsurers’ assessment of the effects of Russia-Ukraine losses and their response to it,” he said.
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