04 April 2025
Airline Insurance Update Q1 2025
2024 presented another familiar period for both airlines and the insurance market, with renewals set against a backdrop of uncertainty, challenges and global volatility. With the conclusion of the first quarter (Q1), these factors continue, but there is now greater scrutiny on insurers and early signs suggest that 2025 is becoming a more challenging environment.
Current challenges and market drivers
The airline insurance market remains delicately balanced with various factors continuing to play out and influence underwriting sentiment, namely:
· Russia/Ukraine – Various court proceedings are in progress, some scheduled to conclude H1 2025, and settlements have been announced, but uncertainty around the final outcome and quantum of losses from this long-running dispute continues to hang over the market. Reserve uncertainty around potential claims continues to affect insurer forecasts.
· Rising claims costs – Overall, aviation insurance claims are increasing in cost, driven by higher values of aircraft, increased repair/parts costs and rising liability awards. Aviation insurers are concerned that pricing models haven’t kept pace with these rising costs and are seeking to address this.
· Boeing MAX –2024 brought new potential B737 Max issues into focus. Both the direct and reinsurance markets are monitoring developments very closely and remain cautious regarding any further prior year claims deterioration and/or potential new claims.
· Global Volatility - Geopolitical volatility, heightened tensions and ongoing conflict around the world continue to generate instability and create challenges. There is strong underwriter scrutiny of client exposures and the latest events in the Middle East have put insurers on high alert.
· Reinsurance – While reinsurance rates softened in 2024 in comparison to 2023 levels, some recent major losses will likely impact reinsurance programmes. The extent to which the reinsurance market will be impacted by these events will take time to fully unravel but with uncertainty still lingering over Russia/Ukraine claims, direct insurers are conscious of potential negative impact on future pricing and cover.
Considering these factors, up until now, most insurers have taken a measured approach, waiting to see how things develop, but pressure is mounting and some insurers are now starting to react. The market landscape is therefore complicated, so a degree of caution is prudent for insurance buyers and early purchase and/or long-term policies could prove an attractive option to those seeking to hedge against market uncertainty and the future prospect of a more challenging landscape.
Recent accumulation of losses add pressure
2024 recorded some significant and costly airline losses, including the tragic Jeju Air incident, which came in the final days of the year. Unfortunately, following this, the aviation insurance market has suffered a series of further costly major losses, including but not limited to the below. Although some of these losses fall within the remit of general aviation (GA), such risks are typically underwritten by airline insurers as part of their wider portfolio and therefore still impact on their overall profitability.
25 December 2024
Azerbaijan Airlines CRJ-701ER crashed in Kazakhstan after being severely damaged by what is believed to be a Russian surface-to-air missile - 38 fatalities.
29 December 2024
Jeju Air B737-800 runway overrun after bird strike and collision with localiser structure in South Korea- 179 fatalities.
28 January 2025
Air Busan A321 caught fire in South Korea while parked, sustaining substantial damage.
29 January 2025
PSA Airlines CRJ-701ER mid-air collision with a US Army Sikorsky UH-60 Black Hawk helicopter in Washington D.C - 67 fatalities.
29 January 2025
Eagle Air Beechcraft 1900D crash in Sudan - 20 fatalities.
1 February 2025
Jet Rescue Air Ambulance Learjet 55 crash in Philadelphia – 7 fatalities (19 injured).
6 February 2025
Bering Air Cessna 208B Grand Caravan crash in Alaska – 10 fatalities.
17 February 2025
Endeavor Air CRJ-900LR destroyed in landing accident in Toronto - no fatalities but critical injuries reported.
14 March 2025
An American Airlines B737-800 caught fire and sustained damage in Colorado after developing an engine fault.
17 March 2025
LANHSA BAe-3212 Jetstream 32 crash in Honduras - 13 fatalities.
The consequence of this accumulation of losses coming in quick succession is that some insurers are now thought to be under significant pressure from their own senior management and capital providers. While official reserves in relation to some of these losses aren’t yet determined, it is estimated that the combined claims value could come close to or even equal the total 2024 annual premium for the airline class. At this early point in the year, with circa 9 months still to play out, the airline market is now on a direct path to recording another consecutive loss-making year on a pure premium versus claims basis. For loss-affected insurers, this position is compounded further once their expenses, reinsurance costs and IBNR claims are factored in.
Capacity
Despite the losses, the availability of capacity is generally the key driver of pricing in the market. During the past 12 months, overall levels have remained high, and the pursuit of premiums has generated strong competition amongst insurers, and in turn, played a key role in the softening of rates.
However, in the wake of recent major airline losses, we’ve already seen one major insurer (Swiss Re) withdraw from the aviation sector in 2025, albeit it is understood that their decision reflected a broader strategic review across their portfolio. Whilst the withdrawal of Swiss Re is unfortunate and it does not do much to dampen overall available capacity levels, it does raise concerns, given the insurer was a well-respected leader, that other underwriting management teams may follow the same sentiment and reassess their positions, particularly should we see any further significant claims and or market event in the coming months. Indeed, in a recent Insurance Insider interview, Fidelis CEO stated that “material increases” were needed in the class, and if they did not transpire Fidelis would reassess its exposure. The situation is uncertain and the impending outcome of litigation relating to the Russia/Ukraine dispute could also play a crucial role in what transpires in the coming months.
Despite recent losses and the withdrawal of Swiss Re adding pressure on the market, there are some mitigating factors which are (for now) helping to keep capacity stable, for instance, several key markets have limited exposure to these claims while other markets will have missed them entirely due to not participating. On this note, it must be highlighted that a number of aviation insurers do not write US airline risks within their defined underwriting appetite.
On a side note, the Q1 market message from Lloyd’s of London earmarked aviation as a line of business for concern, with Lloyd’s leadership calling for underwriting discipline. Lloyd’s said aviation pricing was “almost certainly inadequate” and suggested it may apply “capital implications” in cases where underpriced business continues to be supported. It remains to be seen how this may impact Lloyd’s aviation syndicates/coverholders and their respective business plans.
The situation is uncertain and the impending outcome of litigation relating to the Russia/Ukraine dispute could also play a crucial role in what transpires in the coming months
All risks premium and rating trends
As the first quarter concludes the landscape was largely unchanged, with rate softening evident in the Q1 renewal results. Renewal activity was however very limited, with this period experiencing fewer renewals than any other quarter. Looking ahead, renewal activity increases significantly in Q2. Early indications of those renewals already concluded and or in negotiation point towards potential clouds on the horizon for buyers, and suggest the onset of a market shift with some upward movement in rating evident.
In the wake of recent loss activity, there is a significant focus on the current rating environment and overall pricing adequacy. It is understood that a number of loss affected insurers are now under increased scrutiny from their senior management teams, with some underwriters now having to justify their decisions internally, under increased supervision. In recent weeks, several major airline markets have subsequently adopted a harder underwriting stance, pushing for positive rate change and walking away from risks where there is no premium growth. At present, capacity levels remain strong, but a buyer’s individual level of exposure growth (or lack of) is becoming an increasingly important factor in renewal negotiations. While we are yet to see a collective market push to increase rates substantially, this sentiment indicates a notable change and only adds to the uncertainty surrounding the aviation insurance market at present. Should more capacity start to disappear, become more restrictive and/or scale back as the year progresses then it is highly likely that we will see a stronger shift in rate movement upwards, perhaps coinciding with the busy fourth quarter renewal season, the key income period for airline insurers.
Hull war and excess war third-party (AVN52)
In our last update, we reported that both Hull War and AVN52 pricing were stable, and both segments were in a healthy position following a sustained period of recalibration. As the first quarter of 2025 concludes, this trend remains largely unchanged.
The Hull War market currently has a huge amount of capacity with several new entrants joining over the last 18 months, including two in Q4 2024, which is putting pressure on rates. Rate reductions remain achievable with premium growth, and following markets remain willing to accept significant differentials to Lead. In general, underwriters are still resistant to giving premium reductions, particularly against the backdrop of settlements and the impending court verdicts in respect of leasing claims expected in the coming months. Some markets are looking to offer packaged offerings with their Hull, Spares, and Liability participation, which is positive for buyers and provides added leverage and options.
The Excess AVN52 segment has also seen an increase in capacity by way of new entrants and a general uptick in underwriting appetite. Renewal pricing is stable, with premiums largely flat and small reductions achievable with significant growth.
Looking ahead, we anticipate a continuation of current trends through Q2, but due to the nature of this business segment, any notable geopolitical event could lead to volatility, particularly for airlines operating in or near perceived hotspots.
Short-term Outlook
· Continuation of current trends through Q2 2025 but conditions are very delicately balanced.
· The recent series of major airline losses has added early pressure on insurers and a further major loss/market event could lead to a sudden and severe reaction from insurers.
· Some insurers now pushing to increase rates, adding additional challenges to renewal negotiations but excess capacity levels are helping the overall impact (for now).
· The ongoing Russia/Ukraine leasing claims linger on but could reach a potential resolution in the coming months. The outcome of this litigation cannot be overlooked and could act as a catalyst to altering market conditions as the year progresses
Renewal considerations for insurance buyers
Ensure you have the right representation – It is vital to partner with a broker, such as Gallagher, who understands the complexity and intricacies of aviation risks and has the market experience, leverage and insurer relationships to navigate this uncertain market to deliver the best results for your organisation.
Start your renewal process earlier – Don’t wait until the last minute to discuss your renewal, allocate time with your broker to prepare the right information and strategy ahead of your renewal. Having sufficient time to engage with the market early remains beneficial to achieving the best renewal outcome.
Consider all the options – Take time to consider all strategies and options proposed by your broker. Review your buying requirements and consider the value of additional solutions available, i.e. long-term placements to hedge against volatility, alternative risk transfer solutions etc.
Present the right information – The effective presentation of data plays an increasingly important role in the way insurers process, understand and rate risk exposure. The right information can help positively differentiate your operation, so be sure to address any changes in routes, aircraft use, operations, etc. Transparency on how you manage risk is also crucial to educating underwriters and helping to achieve the best renewal outcomes.
Lock-in early – With potential turbulence on the horizon, prudent clients should consider the merit of ‘locking in’ competitive terms and ‘going early’ (where appropriate) to take advantage of current market conditions while they are still somewhat favourable. Being mindful of the right ‘window’ for buying insurance is crucial and your insurance broker should be best placed to advise the most appropriate timing for your business based on an in-depth understanding of your programme and the latest market environment.
Nurture insurance carrier relationships – Taking time to regularly speak or meet with your key insurance partners will help build relationships and lead to more constructive discussions and renewal negotiations. The value of a trusted partner should not be underestimated during uncertain times, and it is important to keep the future in mind, build positive relationships, and have a clear long-term insurance buying strategy.
Focus on loss control measures and safety management – Many factors play a part in an underwriter's assessment of risk, however, those clients who can demonstrate an active approach to safety and loss control will undoubtedly be viewed far more positively. Clients should therefore make sure to share the results of any risk management projects, safety audits or surveys undertaken so that these can be positively highlighted by your broker when marketing your risk. Similarly, with such a diverse range of specialist aviation solutions and services available in the industry today, clients should take time to speak with their broker to explore the latest resources and discuss the potential benefits they can provide. In this regard, the Gallagher team is ideally positioned, with a dedicated in-house Safety and Operational Aviation Risk (SOAR) team who can provide a range of safety consultancy and risk management tools to help identify and mitigate the sources of risks within your businesses.
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