Despite ongoing uncertainty about airframe losses resulting from the Russia-Ukraine war, which caused an increase in war risk pricing, commercial airlines are generally experiencing a more favorable environment for insurance purchases driven by abundant capacity and more competitive pricing.
However, prices could increase in 2023, depending on the scale of the hull war loss and its effect on the wider aviation insurance market, and as reinsurance costs rise, brokers say.
The market is fragmented, said Jason Saunders, Atlanta-based senior director and head of WTW Global Aerospace-North America, a unit of Willis Towers Watson PLC.
In the aviation general risk market, buyers are seeing interest rate cuts ranging from high single digits to 20%, and there is plenty of capacity for traditional airframe and liability risks as exposures have increased following the return to flying following Covid-19 lockdowns in 2020 and 2021, Saunders said.
But because of the war and the confiscation of Western-owned aircraft in Russia, “we’re seeing some significant increases in frequency in the hull war and surplus war liability market,” he said.
Rate increases range from 100% to 250% for hull war and excess war liability risks, WTW said in its Insurance Marketplace Realities 2023 report issued last week.
The insured hull loss from the war and the confiscation of aircraft is estimated at more than $10 billion, and there are concerns that the loss is large enough to affect all segments of the aviation insurance market.
Fourth-quarter renewals have been a “mixed bag,” said Brian Glod, U.S. aviation practice leader at Marsh LLC in New York.
“War risk renewals are seeing significant increases, but airframe and liability renewals are basically closer to flat,” with differentiation based on loss performance and exposure changes for individual airlines, he said.
For the hull and liability market, there may be some reductions out there, but that doesn’t necessarily mean buyers are getting a price break, Glod said.
“If you have a significant increase in your exposures, you can get a break on the rate and you can end up with a fixed premium, but it’s still considered a reduction because you got a big rate cut,” Glod said.
New capacity is entering the market, both from the US and internationally, which is driving speed reductions, said Glenn Beadling, Dallas-based partner, aerospace and aviation, at McGill and Partners.
Losses in recent years in the hull and liability sector are also lower than previous years, Mr. Beadling.
“The renewals that we’ve seen, especially on the big ones, have probably been high single-digit rate cuts going into maybe low single-digit cuts,” he said.
In the airline market, particularly in large premium accounts, insurers are looking to increase their participation as they look to capitalize on the potential wave of reinsurance and war-driven increases expected in 2023, Glod said. However, capacity is more price disciplined and “they don’t just give it away,” he said.
Underwriters are focused on the geographic regions where the airlines operate and on accumulations of aircraft, Mr. Saunders.
“If you have a low-cost carrier that only operates in the United States, they will see more favorable rates,” while large international airlines that operate in different parts of the world with greater potential exposures will see higher rate increases, he said.
Geographic hotspots, such as Russia, Ukraine and Belarus, are getting more scrutiny, and terms have changed, with some borders and territory changes, brokers said.
“It’s not uncommon to find exclusions on policies for these countries now,” Mr. Saunders.
Minimum premiums, which insurers applied in 2020 to protect their premium base when airline exposures were down, are becoming more flexible but are still being applied, according to brokers.
“Many markets are still trying to maintain a minimum premium percentage and then a premium level in the program,” Mr. Beadling.
Inflation, which affects receivables, is another factor that could affect interest rates at some point, he said. Liability claims are affected by social inflation, and physical injury claims cost more and take longer to complete because of supply chain issues, he said.
Insurers indicate they expect “meaningful” rate and premium increases in 2023 for airlines and manufacturers, driven by rising reinsurance costs and retentions and the potential reserve needed for the Russia-Ukraine war loss, Glod said.
“The insurance companies believe that 2023 will be the year that the water level rises for everyone,” he said.