Author: Claire Vincent
As things stand today, this stabilisation continues, however, we must now acknowledge there will be additional headwinds and challenges for 2022 presented from the current Russia/Ukraine situation.
Current trends
There was a lot of renewal activity in this sector in the final quarter of 2021 and at 1 January 2022, at which point we certainly saw a relaxation of insurers resolve to achieve significant premium increases. There was however, a clear drive amongst insurers to maintain and where possible, increase income levels, but with slightly differing approaches on how to achieve this. One approach was to continue to push for premium increases and use the industry recovery as the reasoning for this. However, the estimates for 2022 and 2021 actual exposures in terms of day to day activities were still down on 2019 levels, so the argument from insurers that the ‘growth’ for 2022 should form part of the pricing, was a difficult pill for clients to swallow. This was particularly tough, following significant premium increases charged during the pandemic where clients had very little or no regular business activity.
During the challenged years of 2018-2020, we saw the majority of insurers scale back on their individual risk participations in this class, some deploying less than half of their maximum lines. This meant that for loss active or highly exposed risks there wasn’t an abundance of capacity available, which in turn enabled premium levels to increase in the way they did. The message from insurers was purely focussed on profitability on each risk individually, and also the portfolio as a whole. Whilst profitability remains their key driver, that desire to maintain premium income is now leading insurers to offer increased participations, which in turn is creating additional capacity and competition. Our clients will be delighted to hear this and the effect it is having on limiting premium increases to a much lower level than we have seen over the last 2 to 3 years.
After that busy 1 January date, there has been far less renewal activity in this sector, with the 1 April the next busy renewal period. Whilst many of the discussions around those renewals are coming to a conclusion as we write this article, the signs certainly remain positive in terms of premium levels reaching a more static position, albeit with each risk very much still being rated on its own merit. Whilst top line premium income is starting to impact insurers underwriting again, profitability is still the key driver.
Capacity
In the second half of 2021, we saw the start of a small number of insurers looking to trade pricing against share of risk to cover budget shortfalls and as already mentioned here we see this continuing, at least in the short-term. We have not seen any new entrants to or withdrawals from the sector in 2022, so the number of insurers has stayed consistent for the last 2 years or so. Additional capacity is therefore only coming from increased shares as incumbents look to maintain and or grow income. There is still less capacity available for the risks with more complex exposures or challenging loss records but for the small to medium sized businesses providing services to the aviation industry there is now competition amongst insurers to not only deploy their full capacity but also to seek out lead positions and as such offer alternative solutions.
Losses
We are pleased to report that we are still not aware of any large losses reported on the 2020 and 2021 years meaning that insurers look to have had a couple of years to re-balance their books. Insurers’ concerns remain around attritional losses across the sector, be it the trips and falls at airports, the knocks and bumps on the ramp or the seemingly minor damage caused to aircraft/engines whilst being serviced or maintained. What we have seen in the last 5 years it that it is now very easy for the cost of these so called attritional losses to exceed USD 1 million.
Aerospace Infrastructure is one of the broadest sectors of the aviation market both in terms of the number and types of risks covered. Total global premium income for the sector is estimated in the region of USD1.2 billion in 2021 with thousands of policies being issued annually. These policies range from low-level airside liability policies to the complex policies required by the major OEM’s and MRO’s, Airports and other Service Providers. Given the large number of risks placed in this sector, the vast majority of insureds are therefore purchasing Aviation Liability insurance whereby a USD 1 million loss could easily erode their annual premium ten times over. The adequacy of premium income is therefore at the forefront of insurer’s minds, especially as the aviation industry recovers and activity levels increase.
Future outlook
- The short-term outlook remains positive with the market continuing to stabilize.
- The Russia/Ukraine situation has however brought uncertainty around the longer-term future trending.
- Risk appetite continues to grow but this could be short-lived.
- Just one significant loss in the sector could easily tip the balance and drive premiums upwards again.
