Despite ongoing uncertainty about hull war losses arising from the Russia-Ukraine war, which caused a surge in war risk pricing, commercial airlines generally are experiencing a more favorable insurance-buying environment driven by plentiful capacity and more competitive pricing.
Rates could increase in 2023, though, depending on the magnitude of the hull war loss and its effect on the broader aviation insurance market, and as reinsurance costs rise, brokers say.
The market is bifurcated, 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 all-risks market, buyers are seeing rate cuts ranging from the high single digits to 20%, and there is plenty of capacity for traditional hull and liability risks as exposures have picked up following the return to flying after the COVID-19 lockdowns in 2020 and 2021, Mr. Saunders said.
However, due to the war and the confiscation of western-owned aircraft in Russia, “we are seeing some significant rate increases in the hull war and excess war liability market,” he said.
Rate hikes are anywhere 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 war loss from the war and confiscation of aircraft is estimated to be more than $10 billion, and there are concerns 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 substantial increases, but hull and liability renewals are basically closer to flat,” with differentiation based on the loss performance and exposure changes of individual airlines, he said.
For the hull and liability market, there may be some rate decreases out there, but it doesn’t necessarily mean that buyers are getting a break on price, Mr. Glod said.
“If you have a substantial increase in your exposures, you might be getting a break on the rate and you might end up with a flat premium, but it’s still considered a decrease because you got a big rate reduction,” Mr. Glod said.
Fresh capacity is coming into the marketplace, both from the United States and internationally, which is driving rate reductions, said Glenn Beadling, Dallas-based partner, aviation and aerospace, at McGill and Partners.
Losses in the past couple of years in the hull and liability sector also are lower than in prior years, Mr. Beadling said.
“The renewals that we’ve seen, especially on the majors, have probably been high single-digit rate reductions going into maybe low single-digit rate reductions,” he said.
In the airline market, especially on large premium accounts, insurers are looking to increase their participation because they want to capitalize on the potential wave of reinsurance and war-driven increases expected in 2023, Mr. Glod said. Capacity is more price-disciplined, however, and “they are not just giving it away,” he said.
Underwriters are focused on the geographic regions where airlines operate and on accumulations of aircraft, Mr. Saunders said.
“If you have a low-cost carrier that only operates in the U.S., they are going to see more favorable rates,” whereas 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 drawing more scrutiny, and terms and conditions have changed, with some limit and territory changes, brokers said.
“It’s not unusual to find exclusions on policies for those countries now,” Mr. Saunders said.
Minimum premiums, which insurers applied in 2020 to protect their premium base when airline exposures were down, are becoming more flexible but still being applied, according to brokers.
“A lot of markets are still trying to maintain a minimum premium percentage and then a premium level in the program,” Mr. Beadling said.
Inflation, which is having an impact on claims, is another factor that could affect rates at some point, he said. Liability claims are being impacted by social inflation, and physical damage claims are costing more and taking longer to finalize due to supply chain issues, he said.
Insurers are indicating that they expect “meaningful” rate and premium increases in 2023 for airlines and manufacturers, driven by rising reinsurance costs and retentions and the potential reserving needed on the Russia-Ukraine war loss, Mr. Glod said.
“Insurers believe that 2023 is going to be the year that the water level rises for all,” he said.