We are pleased to report that this trend is continuing and we have a far more confident outlook as we move towards Q4 in the form of a marketplace that seems to be stabilising.
Current trends
We outlined in our previous edition of Plane Talking the necessity to manage the implications and impacts of the infamously disruptive and damaging COVID-19 pandemic, which has extended its reach to overshadow a second round of renewals within the aerospace infrastructure sector.
The losses of the past ten years, in particular 2018/19 where the overall loss to the Aerospace Infrastructure market was circa USD2bn, continues to dominate Insurers’ pricing models. Insurers are still very much concerned with inflating their premium base to ensure a sustainable platform to write from in the future. A strong market balance sheet will ultimately benefit our clients in the aerospace infrastructure community in the longer term, but it does mean that premium increases are still being targeted, which is not helping our clients during these continually challenging times.
The positive message is that the drive for premium increases across the board has slowed from a sprint to a jog. That is not to say that it no longer has traction but rather there is far less velocity. However, the world economy and the aviation industry are recovering from the pandemic at considerably different rates and as such, there still isn’t a one size fits all approach to the pricing of risks. The aerospace infrastructure sector is still very much underwritten by charging in full premiums rather than adjustable rates on exposure like the airline industry and as such there is far less consistency in the premium percentage increases being achieved. Some clients in this sector are continuing to suffer significantly from the effects of the pandemic with exposures remaining 50% of 2019 levels, whereas others are almost back to normal and/or are at least demonstrating vast growth compared to 2020.
Additionally with much of the world recovering from the pandemic there are a number of insurers worried about the mental health of employees, who would have been isolated for a number of months and the risk of skill dilution/loss. This makes for a very potent and tender area but insurers remain keen to gauge understanding of the steps clients have taken to mitigate the risks associated with their employees returning to work.
Capacity
Capacity continues to grow; not dramatically and not through the introduction of new insurers, but by the increased appetite of individual insurers. With premiums still on the rise and as such more sustainable, insurers are now more willing to deploy greater capacity on individual risks. That said, insurers are also very quick to remind us that while the current premium levels may have helped re-coup old years losses and are trending above claims of the last two years, there remains a concern that premium levels are still insufficient for exposures once the world fully re-opens and operations get back to 2019 levels.
Losses
2020 and 2021 remain inactive in terms of large losses so far in this sector. There is a concern about the level of attritional losses in the airport and ground handling sectors, with continued claims during the pandemic when exposures have been limited, and this is fuelling insurers’ worries with regards to premium income sufficiency. The focus does remain on US litigation though, where social inflation continues to push claims awards to extreme levels. Fortunately, to date in 2021, we are not aware of any new incidents in this sector that are of a particular concern to insurers.
Future outlook
We have a far more confident outlook as we move towards Q4 in the form of a marketplace that seems to be stabilising.
Capacity continues to grow.
Less consistency in premium percentage change due to differing exposure development.
Rating adequacies remain at the forefront of Insurers underwriting.
CONDITIONS AND LIMITATIONS
This note is not intended to give legal or financial advice, and, accordingly, it should not be relied upon for such. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. In preparing this note we have relied on information sourced from third parties and we make no claims as to the completeness or accuracy of the information contained herein. It reflects our understanding as at 29 September 2022, but you will recognise that matters concerning COVID-19 are fast changing across the world. You should not act upon information in this bulletin nor determine not to act, without first seeking specific legal and/or specialist advice. Our advice to our clients is as an insurance broker and is provided subject to specific terms and conditions, the terms of which take precedence over any representations in this document. No third party to whom this is passed can rely on it. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide herein and exclude liability for the content to fullest extent permitted by law. Should you require advice about your specific insurance arrangements or specific claim circumstances, please get in touch with your usual contact at Gallagher Aerospace.
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