03 July 2025
Airline Insurance Market Update
Q2 2025
As we pass the mid-point of the year, the airline insurance market remains a challenging environment. Loss activity persists, global tensions are heightened and the airline insurance market remains a challenging environment. The class is now firmly under the spotlight, yet despite this, the market remains stable with supply and demand dynamics keeping conditions largely favourable to buyers. However, the situation requires careful navigation and a well-prepared and implemented strategy in order to achieve the best outcomes.
Russian Aircraft Lessor Policy Claims – English High Court Judgement
Judgement was handed down on 11 June 2025 concerning the Russia Aircraft Lessor Policy ‘mega-trial’ held in the UK High Court, comprising a combined hearing and judgement of six actions in which the lessors claimed against their relevant Lessor Policy (LP) insurers. The judgement relates to 147 aircraft, 16 standalone engines, and 1 piece of other equipment, which had a total insured value of over USD4.5 billion.
The lessors/claimants involved are AerCap, DAE, Falcon 2019, KDAC, Merx and GASL. KDAC settled with its insurers ahead of the conclusion of the trial. Following Russia’s invasion of Ukraine and subsequent EU/UK/US sanctions prohibiting aircraft leasing, the lessors issued default and termination notices under their leases with Russian airlines. The aircraft, engines and equipment have not been returned and continue to be operated by Russian airlines.
The lessors made efforts to mitigate their losses, seeking to repossess aircraft wherever possible, pursuing claims under the Operator Policies (OP) and in some instances negotiating substantial partial settlements with the underlying Russian OP insurers.
The lessors submitted claims under their LPs, which the involved insurers sought to deny on a number of grounds. The trial itself took place over five months, involving over 50 counsel and various expert and fact witnesses. A similar ‘mega-trial’ in Dublin was largely settled during the course of proceedings and has not yet had a judgement.
The High Court’s judgement considers a number of questions, including:
- Were the aircraft lost?
- If so, when did the loss occur and what was the cause of the loss?
- Does Contingent cover or Possessed cover apply?
The judgement is in favour of the lessors, with key conclusions as follows:
- The proximate cause of the loss was the coming into force of the Russian Government issued Government Resolution No. 311, under which aircraft and aircraft engines (amongst other goods and materials) were made subject to an export ban. The Court determined that this Resolution was a ‘restraint’ or ‘detention’ within the Government Perils of the War Risk cover.
- The aircraft were lost on 10 March 2022, when the Resolution came into force.
- Each claimant may recover under its Contingent Cover, in none of these instances had the Possessed Cover been triggered.
The judgement, available here, also considers ‘Grip of the Peril’ principles. The Court held that where hull war underwriters had issued Notices of Review of Geographic Limits, seeking to exclude regions such as Russia, these Notices were not sufficient to override the Grip of the Peril principles where an insured peril had started to operate within the policy period.
Looking forward, hull war insurers are faced with substantial claims, which they are now due to pay by 2 July 2025. A separate hearing will be arranged to decide any outstanding questions around interest payments and costs. We understand that hull war insurers have submitted applications to appeal.
The court judgement offers comfort to lessors. Aircraft leasing is essential to the civil aviation industry, with around 50% of the world’s fleet now leased and purchased by lessors of their own Contingent & Possessed Policies are an essential component of prudent aircraft leasing.
Market conditions, contingent and possessed premiums for lessors have increased substantially since 2022, with amended terms, conditions, geographical exclusions and aggregate limits. The impact of this judgement upon rates, capacity and appetite in the market as a whole remains to be seen.
Further airline losses add pressure
Following a poor start to the year and a string of high-profile airline losses in Q1, aviation underwriters would have hoped the remainder of 2025 would be far less remarkable. However, as Q2 concludes, the market has suffered additional losses, the most significant of which saw the tragic loss of Air India flight AI171. The Boeing 787-8 Dreamliner crashed into a residential complex in Ahmedabad just 33 seconds after take-off, killing 241 of the 242 people onboard, in addition to more than 30 persons on the ground. This tragic incident represents another substantial claim with loss estimates in the low hundreds of millions and adds further scrutiny on the pressured airline market.
On a side note, it is rumoured that American Airlines are in negotiations with the US government to reach a settlement over the fatal Washington crash on 29 January 2025. The American Airlines Bombardier CRJ700 collided mid-air with a US Army Sikorsky UH-60 Black Hawk helicopter, killing 67 people. A positive outcome with the US government paying a portion of the liability claims would reduce the aviation insurance market’s expected payout but it remains to be seen to what extent this would affect individual insurer reserves and the overall year-end market position on a premium versus claims basis.
Geopolitical situation
Aviation, by definition, is international; aviation insurers are therefore exposed whenever the geopolitical situation in a region deteriorates. With tensions escalating between India and Pakistan, and Israel and Iran, as well as latent concern around exposure to China/Taiwan, insurers are facing heightened risk exposure.
In the current fluid environment, clients should be prepared for added underwriting scrutiny, responsive measures and restrictions from insurers. As our Lead Lines contributor commented earlier in this edition, for risk managers, it is extremely important to remain connected and to gather information on geopolitical risk from various sources to maintain anticipatory views that allow you to react before situations escalate. In this regard, Gallagher’s partnership with Osprey Flight Services can provide clients with a deeper understanding of aviation threats, offering leading-edge industry solutions to minimise risks and engaging active support from the insurance sector.
Capacity
The availability of capacity remains the key driver of pricing in the market. As the second quarter concludes, levels remain high, despite growing market pressures on some insurers. The unexpected withdrawal of Swiss Re earlier this year has had little impact, and while there were concerns that this might prompt other carriers to follow suit or reassess their positions, no significant effects have been observed so far. Indeed, in recent months, we have actually seen new market entrants, including Whitecap Re and XS Global (DIFC). The current high level of capacity continues to help moderate the impact of recent losses/events on the rating trend.
That said, as mentioned in our last edition, the consequence of continued losses is that the airline sector, and indeed the entire aviation insurance class, remains under scrutiny as senior managements and capital providers closely assess their exposures and future business plans. The recent Air India loss further compounds the situation, and any new loss activity could have dire consequences for some insurers. Indeed, Lloyd’s recently voiced concern about the adequacy of aviation pricing and suggested that they may impose future restrictions on syndicates with inadequate results. Should capacity start to disappear, become more restrictive and/or scale back, then it is highly likely that we will see a stronger shift in rate movement upwards.
As a side note, the aviation insurance sector continues to experience notable personnel movement. Indeed, there has been significant movement in both the aviation insurer and broking sectors of late, including several high-profile underwriter movements and the much-publicised legal action that has been filed by Marsh in the New York State Supreme Court against Willis in response to alleged poaching of numerous staff. While this movement has had little immediate impact on the market, it creates uncertainty for clients as their insurance service teams transit to new homes and leave behind depleted resources at Marsh.
All Risks Premium and Rating Trends
In our last edition, we reported that we were starting to see some early rate hardening in the airline segment. As we pass the mid-point of the year, this pricing trend has carried through and the combined Q2 figure is essentially flat. We remain mindful that current 2025 data is still somewhat limited and there remains notable differentiation in results of each risk, dependent on individual profile, losses and exposure changes.
Positively for buyers, at the time of Plane Talking’s release, the market reaction to the UK High Court Judgement regarding the Russian Aircraft Lessor Policy Claims and the recent Air India loss has been relatively muted. Whilst we have, as a market, held our breath waiting for the impact of these judgements, the direct market, for now at least, remains stable. However, this judgement is not the final word on this subject; there remain unresolved questions around potential appeals, interest payments and legal costs, the impact of which is yet to be determined. Additionally, around 90 claims under (re)insurance policies are set to be heard in 2026, taking place within different jurisdictions worldwide. Looking ahead, there is also considerable market speculation about the potential reaction of reinsurers to these judgements and possible upward pressure on reinsurance pricing flowing back through the direct aviation insurance market, but we suspect this is something we will only truly understand when the major reinsurance renewals take to market towards the end of the year.
Whilst market reaction (so far) has been muted, this legal process has been and continues to be extremely expensive for those insurers involved, and there now exists a clear market divergence in underwriting sentiment. We are yet to see a collective market push to increase rates, but legacy and loss-affected insurers continue to communicate to brokers the pressures they are under from their senior management to exercise greater underwriting discipline and address portfolio profitability. However, despite this, high capacity levels endure, militating against any adverse reaction to recent losses, as newer entrants vie for growth unencumbered by the same pressures.
Looking ahead, based on our knowledge of early July renewals, which have been completed and others currently in negotiation, all signs point to a continuation of current trends through Q3. We are mindful that the airline insurance class is under scrutiny and the situation is unpredictable. High levels of capacity continue to provide brokers with options and a degree of leverage in negotiations, and positive deals can still be achieved, particularly for clients with attractive risk profiles and claims records. As we draw closer to the busy fourth quarter renewal season, the market's key income period, a clash may play out between underwriters chasing ambitious year-end premium targets and, on the other hand, a perceived need to face up to underlying market stresses and improve underwriting profitability. To whatever extent these competing forces work their way through, the marketplace looks volatile for the foreseeable future.
Hull War and Excess War Third-Party (AVN52)
Recent Hull War renewals have shown Lead rate reductions with an additional improvement in the composite result, as following markets compete for position in an over-capacitated market. It awaits to be seen if any insurers take a different view following the result of the UK High Court Judgement regarding the Russian Aircraft Lessor claims, but as mentioned earlier, this judgment is not the final word on this subject and there remain many unresolved questions. Positively for buyers, for now at least, the direct Hull War market seems to be behaving as if this outcome is already priced in, following a period of recalibration post-2022 where huge increases were applied to all renewals. However, we cannot ignore that several War insurers have significant exposure to these claims and this recent Judgement may now prompt some to reconsider their future positions and underwriting approach, particularly those still facing additional jurisdictional trials in the coming year. In the Excess War Third-Party line of business, conditions are also positive for buyers, with some existing markets actively looking to increase their capacity and the overall premium trend is generally flat to small reductions. Looking ahead, we are mindful that the war market is highly reactive to losses and global volatility, so pricing can change very quickly. On this note, certain geographic regions continue to face closer scrutiny, with underwriters on high alert following recent increased hostilities between Israel and Iran.
Short-term Outlook
- Continuation of current trends through Q3 2025, but conditions remain delicately balanced.
- Legacy/loss-affected Insurers are under pressure, and the airline insurance class is in the spotlight
- A further major loss/market event could lead to a sudden and severe reaction from insurers
- While some insurers are pushing for rate increases, adding additional challenges to renewal negotiations, excess capacity levels are providing options and helping to mitigate this (for now)
- Positive deals can still be achieved, particularly for clients with attractive risk profiles and claims records
- The long-disputed Russia leasing claims have now reached some resolution, but this is not the final word on this subject and there remain unresolved questions. The reinsurance markets' reaction to this judgement and its knock-on effect on the direct aviation insurance market is something to monitor, but it may take some time before any impact is felt as the situation develops.
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This article 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. It reflects our understanding as at 03/07/2025. You should not act upon information in this bulletin nor determine not to act, without first seeking specific legal and/or specialist advice Gallagher accepts no liability for any inaccuracy, omission or mistake in this note, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein. No third party to whom this is passed can rely on it. Should you require advice about your specific insurance arrangements or specific claim circumstances, please get in touch with your usual contact at Gallagher or uk.specialty.info@ajg.com.
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