As the third quarter concludes, we reach the point of the year where market activity gathers pace and focus turns to the renewals of the fourth quarter; a decisive period for aviation insurers and the market alike.
Plane Talking - Article 2

While it is perhaps premature to draw year-end conclusions with three months of the year still to play out, capacity is looking strong and rate increases are continuing to moderate, pointing to a more positive buying environment on the horizon for airline insurance buyers.

Premium and rating trends

There has been much discussion recently relating to future market conditions and the longevity of the upwards rating trend and as we enter the all-important fourth quarter renewal period, insurers continue to target rate increases on airline business as a starting point for their negotiations. However, following the trend of recent months, we continue to record further moderation of rate increases with the average level of increase down notably on prior quarters.

It must be noted that the range of renewal results remains larger than normal owing to the varied situations airlines find themselves in. With premiums hovering around minimum requirements for many, results are more easily impacted by individual losses and exposure changes, but it is clear overall pricing levels are stabilising. This moderation is welcomed after three years of consecutive rate increases and reflects improved underwriting results. This has been evidenced in recent insurer results including those of Lloyd’s of London who announced a return to profitability for the first half of 2021.

Underwriters are however, still under pressure to focus on maintaining income and must continue to balance this against the need to support their clients, most of which are still operating way below pre-pandemic levels. Underwriters remain reluctant to deviate too far from model pricing and/or stated minimum premiums in the policy in fear of falling short on their forecast budgets but most remain willing to be flexible and will listen to broker requests where there is valid justification. The added complexities of negotiations brought about by the pandemic are therefore likely to remain a feature for both brokers and insurers for the immediate future and actual adjusted exposures, premium return options, minimum premiums and other elements and variables will remain a key feature in renewal negotiations.

Looking ahead, the fourth quarter is undoubtedly the most significant transactional period for the aviation insurance market with an estimated 60%-70% of the world’s airlines renewing. Considering the high volume of renewals taking place and substantial level of premium up for grabs, it is typically this period which will determine the year-end results for airline underwriters and set the tone for the forthcoming year. As we go into this crucial renewal period, some insurers are holding a harder pricing standpoint, but considering the increased capacity now available and the appetite of their competitors, we would anticipate these outliers are likely to soften their positions. There remain a number of variables that could influence the future outlook but initial signs suggest a further tempering of rate and a more positive outlook for airline insurance buyers.


New capacity has come back into the aviation market during the past nine months as a number of existing markets are showing increased appetite and are increasingly seeking to deploy extra capacity to the right risk. These factors have led to increased competition, and are directly contributable to the rate tempering which we are now seeing.

Airline capacity is sufficient for all risks and all, but those with the largest value/limit buying and/or loss active placements should find increased levels and options available to them at renewal in comparison to that seen in 2020.

In terms of future capacity levels, we are aware of at least two new entrants (Hartford and Lloyd’s start-up Inigo) finalising their respective preparations to enter the aviation market shortly. Both markets we understand will initially write Hull War business only, but this will help to ease rating pressure and provide additional options for buyers in this class.

Ancillary covers

In general, airline ancillary covers such as Hull War, AVN52E and Deductible are also showing further moderation of rate increases, albeit at a slower pace. Average rating levels are hovering at a slightly higher level than witnessed in the All Risks line of business, with Hull War showing the largest increases of all the ancillary covers. As mentioned earlier, increased capacity, appetite and competition are key contributors to this moderation and we expect this trend to continue into 2022 with further entrants and options available.

As one would expect, those airlines that purchase the highest levels and limits of cover and/or have adverse exposures and losses will attract less capacity than their peers which do not.

Airline losses

In terms of airline losses, the year to date picture remains largely positive for underwriters, with few notable major losses and smaller day to day attritional type loss activity still down on ‘normal’ years due to the ongoing pandemic impact on operational levels.

We did however record further loss activity in the third quarter including two total losses, one of which involved fatalities. In the early morning of 2 July, a Transair Boeing 737-200F experienced mechanical difficulties and crashed shortly after take-off in Hawaii. Remarkably both crew members survived. Just a few days later on 6 July, an Antonov An-26, operated by passenger airline Petropavlovsk-Kamchatsky Air, crashed while on approach to Palana Airport, Russia, killing all 28 on board.

Aside from the above, there were no other known major losses of note, with most other claims relating to various runway mishaps, bird-strikes and ground incidents.

While not loss related, the conflict seen in Afghanistan in recent weeks has led to heightened underwriter focus on exposures and airline flight plans and paths. Civil aircraft are currently barred from operating over the country unless given prior authorization, highlighting again how quickly things can change in aviation due to external factors. Looking ahead, geopolitical instability and terrorism risk are likely to remain a key concern for underwriters and those airlines operating in or with exposure to heightened areas should be prepared to supply additional information and face added scrutiny on renewal.

Future outlook

More positive environment for airline insurance buyers than seen in 2020.

Absent of high loss levels, or a major event, we expect to see further moderation in technical rates.

Capacity levels, appetite and competition remains strong and could increase in the coming months.

Risk differentiation will remain a key theme and insurers will continue to look for robust underwriting data.

Renewal negotiations will remain complex, take longer and the individual circumstances and policy specifics of each airline will influence the results.

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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