Even if losses normalise as traffic volumes recover, insurers will need to assess if they can proceed based on pre-COVID trends and figures. Future losses are likely to remain at a higher level. There are several reasons for this:

• The entire aviation industry is desperately looking for talent. Pilots, cabin crew, engineers, and ground handlers are in high demand. The workforce has been scaled back, and many are not willing to return. Experienced employees took early retirement. Now, a less experienced workforce combined with greater time and cost pressures could adversely affect (attritional) losses.
• Supply-chain constraints are another factor. Spare parts are not readily available, there are constraints on MRO capacity, and repairs for some new materials are complex. These factors could all raise the cost for hull claims beyond previous levels.
• Even without any change in loss frequency or underlying exposure, inflation levels have risen significantly. Social inflation – mainly in the US, but also in other jurisdictions – is another concern for insurers, given the large limits provided in aviation.
• Lastly, there is an increasing focus on ESG criteria. Underwriters will increasingly screen their portfolios and assess measures to limit their CO2 footprint. Environmental concerns are increasingly relevant in aviation, and this may play a greater role when allocating risk capital.

All these factors make for increased uncertainty for aviation insurers. Uncertainty usually leads to higher risk-capital costs and higher margins. Management teams are looking at aviation portfolios more critically to evaluate how moderate past performance and future uncertainty can be leveraged into a desirable business.