03 October 2024
Aerospace Manufacturers & Infrastructure Market Update Q3 2024
After the systemic impact on all stakeholders of non-cyclical market challenges (Covid and The Impact of Russia/Ukraine) the Aviation Insurance Market as a whole, and the Aerospace Manufacturers and Infrastructure Providers sector specifically, is experiencing a period of relative calm as capacity providers manage the continuation of ‘softer’ market conditions into Q4.
As mentioned in previous editions of Plane Talking there remains uncertainty in some respects, the direct market remains unusually uncorrelated with the ‘harder’ reinsurance market (where retentions, coverage and pricing are all under the microscope), while we are edging closer to litigation in respect of Russia/Ukraine leading to something other than (more or less) educated speculation.
Though positive for insurance buyers, the above uncertainties have done little to calm the current combination of overcapacity and a drive from insurers for top-line premium growth. Insurer senior management/capital providers continue to push for Underwriters to maintain income levels. There is a general expectation that Q4 will see increased competition, as insurers seek to hit annual premium targets.
Indicative of where the market is in the insurance cycle are some of the programme trends that have become evident through 2024, in particular, in the lead-up to the relatively busy 1 July renewal date.
Long-term agreements
We have previously mentioned insurers selectively offering capacity on LTAs, typically 24 months subject to annual re-signing after 12 months. While mostly these LTAs have been subject to Loss / Exposure / Reinsurance caveats, there is now precedent from some quarters for non-caveated LTAs. Where capacity is secure for the second 12-month period even in the face of exposure growth and/or adverse claims performance. Such deals point to a belief from insurers that market conditions in 2025 may be no different to 2024.
Increased limits
Partially driven by loss trends, in particular ‘nuclear’ US liability awards, and partly driven by a desire to mitigate premium base erosion we are seeing multiple Leaders pitch increased limits at renewal. Client reaction has been mixed, with some choosing to purchase as much limit as possible, with others focused on achieving the most economic result possible.
Stretched differentials
The verticalised nature of the Aviation market is one of its idiosyncrasies and current market conditions emphasise the value of this approach. We are seeing an undeniable expansion of the gap between the premium terms secured by the Leader and the premium terms secured by following insurers for clients with quota share placements. While there has not been an abundance of new capacity, many existing insurers are offering larger participations leading to increased competition for shares and aggressive pricing proposals.
Multi-cover offerings
Given that the ‘Main Programme’ policies for many Manufacturers / Infrastructure Providers are significantly oversubscribed we are seeing a number of insurers begin to offer support on Hull War and Excess War Liability policies to differentiate their offering. While capacity is not as tight as in recent years within these specialist aviation sub-classes there is not yet the same abundance as for Product/Premises/Hangarkeepers Liability policies. As such, these offers of support are well received by buyers and can lead to consideration of offers on a Multi-Cover basis and preference through any line allocation exercise.
Facility interest
2024 has seen an expansion of insurer appetite to participate through facility mechanisms/structures. For insurers such structures can provide otherwise unachievable penetration into a target segment, a valuable line of sight on future premium potential and additional analytic value.
Gallagher is navigating through these conditions to deliver tailored results in partnership with aviation clients. The extent to which these market conditions can continue to pervade unabated remains to be seen, consequently, Gallagher's advice to clients is to take a balanced view when it comes to engagement with insurers and consider both short-term and long-term strategic imperatives when making important renewal decisions regarding structure, approach, allocations.
From the client perspective, with the aviation market now re-aligned to the long-term growth trajectory there is less pressure to relentlessly focus on cost, with more focus now given to programme innovation. Those insurers that can meet client demand for non-traditional coverages/solutions in a sustainable but impactful way will continue to be those who develop the most meaningful and long-lasting partnerships.
Outlook
Market conditions have remained stable for most of 2024, and the expectation is that this will continue in the short term and through until at least the close of the year. More uncertain is 2025 as reinsurance renewals and other market developments will likely drive the evolution of market conditions. Gallagher will remain watchful as ever and ensure we are optimally positioned to deliver the best solutions against the backdrop of whatever the aviation market brings.
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