09 January 2025
Aerospace Manufacturers & Infrastructure Market Update Q4 2024
As 2024 draws to a close, the delayed impact of significant losses in the Aviation sector from 2018 and the ongoing Russia/Ukraine loss dispute continues to benefit our insured clients. However, this also means that uncertainty persists for 2025.
The fourth quarter of 2024 was marked by a high volume of renewal activity, especially in the Airline sector, as is typical in this class of insurance. Additionally, many Aerospace Infrastructure risks renew on 1 January, which leads to a bustling marketplace with a significant volume of renewal negotiations all occurring simultaneously.
Throughout our updates in 2024, we have consistently reported the positive availability of capacity for attractive risks, a trend that continued through Q4. Insurers are eager to maximise their shares on individual risks to preserve and potentially increase premium income. This presents two main challenges for insurers: maintaining their existing shares and managing pricing pressures.
To expand their lines on a particular placement, insurers must offer something unique to the insured. In a co-insurance market, where insurers follow a leader, offering different coverage levels isn't practical as it complicates clients' understanding of their policy coverages, potentially confusing claims. Therefore, insurers often differentiate themselves financially, which is why the aviation market operates as a ‘Vertical’ market, with insurers quoting for their share. In this competitive environment, also referred to as 'Soft Market Conditions,' insurers vie for shares on risks. Up to Q3, the market was considered 'Stable,' with some insurers eager to grow their portfolios, slightly pressuring premium pricing. In Q4, without a resolution to the Russia/Ukraine lawsuits and no significant impact on reinsurance programs, market conditions softened further. Premium reductions are once again achievable for attractive risks, but they remain modest and are not yet large enough to classify the market as 'Soft.'
Underwriting themes
The Aerospace sector is extremely diverse, and each renewal is assessed based on its risk profile, claims history, liability limit, and expiring premium base, which results in a wide range of renewal outcomes.
Component manufacturers and refuellers generate the most competition and pricing pressure due to their low loss ratios and liability limits of USD1 billion or below, attracting significant capacity.
Airports exhibit mixed loss ratios; larger airports often experience more losses due to their size and traffic, leading to individualised ratings. Air Traffic Control is considered a catastrophe risk, despite no major mid-air collision claims in recent years, though runway incursions have occurred. Despite the low frequency of losses, premiums in this sector are already competitive with large catastrophe limits purchased, resulting in less pricing pressure.
Service Providers like ground handlers and caterers, particularly larger companies, tend to experience frequent losses due to their operations' scale and nature. The high cost of aircraft repairs and bodily injury awards reduces insurers' appetite for this sector. Maintenance, Repair and Overhaul (MRO) providers face similar challenges, with less frequent but more costly losses, leading to higher premiums that can attract insurers.
Policies with premiums exceeding USD1 million are challenging for insurers to abandon due to the significant income they represent. Consequently, there is competition for large risks across the sector, including major manufacturers. Although some manufacturers' loss ratios may not seem appealing initially, the top 20 manufacturers account for over 50% of the entire Aerospace sector's premium pot, making participation crucial in a catastrophe market like Aerospace.
Outlook
As we enter 2025, we do not anticipate dramatic market changes, which is favourable for insured clients. There are no indications of reduced capacity or changes in insurers' underwriting models, suggesting that competition and the pursuit of premium income will persist into Q1 2025. However, we must remain vigilant, as significant changes could occur swiftly and have a substantial impact when they do
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