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Aerospace Insurance Market: Pricing and Risk Update - Q3 2022

As we enter Q4 2022, in the vast majority of territories, the aviation landscape is beginning to feel “post-pandemic”.

11/14/2022

As we enter Q4 2022, in the vast majority of territories, the aviation landscape is beginning to feel “post-pandemic”.  Although inflationary and staffing pressures remain, the industry is much closer to a “business as usual” operating environment.

Meanwhile, in most sub-classes of the Aerospace insurance market conditions remain stable. Low single digit increases from leaders are widely available with many renewals receiving “as before” quotes vs last year. New participants are looking to grow market share and incumbent markets offering increased line sizes which further improves the composite premium for achievable for customers. The notable exceptions remain Contingent, Hull War and War Liability (XS52) risks which are seeing large, sometimes triple digit, increases.

And yet, a cautionary approach is advised. There are several factors that could disrupt the market in the coming months. Claims emanating from the Russia-Ukraine conflict continue to be litigated but may well result in a major loss to the market, deterioration in historical claims remains a factor and, most crucially, the 1/1 reinsurance season is approaching. Aerospace insurers may face both increased reinsurance costs and/or a reduction in their direct line size. If this comes to pass there is a risk, though not a certainty, that market increases may return as we enter 2023. As ever we advise close communication with your Marsh team, an early start to renewal negotiations and where available consideration of a long-term agreement with insurers.

Factors Impacting the Aerospace Insurance Market heading into Q4 2022

Macro-factors influencing the Aerospace in 2022

Recovery from COVID-19 - Whilst on a global scale we are now seeing signs of recovery, there remains large areas of the global aviation market subject to significant challenges and restrictions. This is resulting in large year on year exposure fluctuations for Aerospace insurance buyers which will need to be managed through 2022 renewals.

Inflationary environment - Widespread inflationary pressures are resulting in significant challenges for Aerospace organisations such as:

  • raw material costs and shrinking margins.
  • a need to review insured asset values.
  • increased turnover not necessarily equating to  truly increased exposure.
  • continued social inflation and occasional nuclear verdicts impacting claims settlements.

Competition - Rates within the aerospace market have hardened notably within the last three years. Entering 2022 some carriers are actively seeking to grow market share. In some sub sectors we are seeing additional capacity and competition, in other cases we are seeing capacity withdrawn particularly in the Hull War, XS52, and Contingent markets.

Principle considerations for Aerospace insurers in Q3 2022

  1. Actual and potential market losses - Losses emanating from the Russia-Ukraine conflict have now entered litigation and there is a growing sense that a significant claim may be settled by the market. Meanwhile, development and deterioration in historical losses maintains focus on the underwriting performance of Aviation as a major class of business.
  2. A divided market environment - Rating conditions in the Aerospace market are fundamentally split. Contingent, Hull War, and XS52 risks can expect large increases for the foreseeable future as well as coverage restrictions and reduced capacity. For the wider Aerospace market conditions are stable and even improving.  Appetite is strong amongst insurers and competition is restraining premium increases.
  3. The 1/1 reinsurance renewal season will be crucial - As the 1/1 reinsurance renewal season approaches many Aerospace insurers are concerned that their reinsurance costs will increase combined with a potential reduction in capacity. Should this occur we can expect a corresponding impact on the direct market, instability and possible premium increases. This is by no means certain but will be monitored closely by brokers and Aerospace market customers in the coming months.

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