At Chubb, we are very concerned about rating adequacy, particularly within the Airline sector as we approach the last quarter. Aviation reinsurance rates increased in 2023 and are up again in 2024, albeit by less than last year. Retentions have also significantly increased, putting further pressure on insurers’ margins. Arguably margins were poor previously, but they are now at critical levels and aviation underwriters are now, very much, under the spotlight of the C-Suite. With increased oversight and close monitoring of rating trends, the end result is that Aviation underwriting managers will be forced to impose greater underwriting discipline on their teams, leading to reduced market share (which brokers are noting already). For those markets that defy such prudent actions, this will lead to an inevitable contraction of players in the market, as some insurers exit the business.

Against this backdrop, Accident Rates have been improving, the annual 10-year average number of fatal accidents on commercial aircraft is now 8.6, compared to the prior decade at 14.7, and 24.3 during the 1990s. This coincides with an increasing number of flights and passengers over this period. There is cause for optimism, but with such poor pricing adequacy, it would not take much to wipe out the annual premium year.

To add to this complicated picture, the position of the direct market is completely opposite to the reinsurance market; direct rates are softening, and reinsurance rates continue to harden. This divergence between the insurance and reinsurance market is unprecedented in my career, and even some of my colleagues, whose experience stretches four decades, will not have seen such a gap between the aspirations of the direct market and those of reinsurers. Let’s not forget we are writing catastrophe business and are heavily reliant on our reinsurers.

The result will be a fracturing of the available capacity in the direct market, forcing out those with poor balance sheets and leading to rate increases as a direct result of the falling capacity.

The geo-political landscape is particularly volatile at the moment. Having reviewed participation in Hull War last year, we decided the risk-to-reward ratio is inadequate, despite the increased pricing, reduced aggregates, and the tightening of terms and conditions seen in recent years. Country aggregations, particularly in more challenging parts of the world, are enormous and are not adequately reflected in the pricing being achieved in the market.

From an All Risks perspective, the risk is restricted on the Third Party Liability to sub-limits on the operator policies and passenger liability is arguably more manageable than Hull War. Payouts for passengers arising out of a war-related event are infrequent and, to date, aggregation of losses arising out of such an event, to multiple carriers and multiple losses of life is rare. September 2011 is the last event involving major loss of life involving more than one carrier. That’s not to say it won’t happen, but it is now a more manageable scenario than writing multiple hulls with different carriers in one location.

From a client’s perspective, I do feel transparency with the insurance community is very important. We are constantly fielding questions and the more information we have from operators on how they manage the risk is key. I met with the Head of Security at an Airline earlier this year to discuss GPS jamming and the crisis in the Middle East. The information that was shared with me allowed me to have a much greater understanding of the risk, allowing me to articulate this to my colleagues and the C-Suite, therefore, getting them more comfortable with the exposure.