Imminent losses from the conflict in Ukraine and large losses, such as Boeing’s claim, have thrown the market into uncertainty.
Some in the market lamented Ukraine’s lack of reserve for losses, saying it makes the market look underprepared and uncertain and is an “embarrassing” reflection of most traders’ strategy in the market.
A source told this publication that many insurers have their heads in the sand and have been told to ‘skip the fourth quarter and do it again next year’, but that will only reignite the problem of corrections. rate later.
Others would say they can’t book until lawyers sort out which market segment will receive claims – for example, AerCap’s Trial in the High Court against insurers both on its comprehensive policy and on its contingent war policy.
As insurers are insulated from some of the recent early claims by reinsurance, the market expects a ripple effect from higher reinsurance pricing which will impact primary rates in an already challenging market war. , and will potentially begin to have a greater influence on the whole risk-industry.
A story of two markets
Rates in the war aviation market are “through the roof”, while the all-risks market is much softer, sources told this publication.
The air warfare market sees rate increases of around 100% on average, with a differentiation between accounts that have Russian exposure and those that do not.
However, the average rate increase has been largely skewed by accounts exposed to Russia, with their rates often more than doubling, and is “a drop in the bucket compared to the size of the claims”, it said. a source told this publication.
In 2021, when the market was much weaker and hadn’t suffered major losses in some time, the global hull warfare bounty revenue was around $180 million. Now insurers are targeting premiums above $500 million to counter increased exposure, Gallagher Re said in an October report.
Accounts with little or no exposure to Russia see their rates increase by around 65-75%.
Market sources said repossession sub-limits and other aggregates were being revised following the Russian invasion of Ukraine. Limits are now reduced or insurers charge much more for the same coverage.
Brokers ask underwriters to treat accounts individually to help provide better rates and renewals to those accounts without Russian exposure.
The all-risks market draws in capacity
The all-risks market can thank an influx of capacity for its softer renewals. The momentum also reflects that the all-risks market is pushing back on Ukrainian claims being pursued by lessors, which carriers say are set to fall as a result of war and other policies.
Sources told this publication that despite uncertainty in other areas of the aviation market, all-risk accounts with good loss histories are seeing relatively stable all-risk renewal rates, while those with losses or exposure to Russia see moderate rate increases of between 20%-40%.
Over the past few months, there have been a host of new entrants, including Everestwhich, according to this publication, was entering the aviation market with the appointment of Paul Trueman, and Lancashirewho entered the airline market with the appointment of Angus Roberts.
A source told this publication that there was “too much” capacity in the market and insurers would see a drop in revenue as a result.
Conversely, the war market saw a key leader emerge.
In May this year, this publication revealed that AIG had withdrawn of the Autonomous Air Warfare market, including Aviation Hull Warfare, Contingent Aviation Hull Warfare, and Surplus and Autonomous AVN52 on both AIG and Talbot.
Landlords bear the brunt of rate hikes
Over the past nine months, the aviation market’s attention has focused on aircraft lessors due to the large volume of aircraft and equipment stranded in Russia.
Sources told this publication that average rate increases on war policies have been largely skewed by carriers raising rates for lessors due to their exposure to Russia, with some accounts seeing increases that more than double expiration rates.
An underwriter told this publication that while many aviation war accounts are quoted at more than 100% rate increases, the market needs more than 300% to rebalance.
Earlier this year, this publication revealed that the contingent aviation war policy for the aircraft lessor SMBC Aviation Capital was renewed with a premium increase of approximately ten times.
In the same way, Castlelake had its air warfare policy repeatedly renewed its previous premium rate and expropriation removed from its policy due to its exposure to Russia.
The world’s largest lessor, AerCap, has been the first to take its insurers to court, insisting that its all-risk insurers are “wrongfully breaking the policy” over non-payment of its claims. $3.5 billion claim on its contingent comprehensive policy.
Now, other donors have followed suit. Last month, Dubai Aerospace Enterprise lodged a complaint with the High Court against 11 insurers just six months after revealing that they had filed a $1 billion insurance claim for 19 aircraft on the ground in Russia.
Last week it was revealed that Carlyle Aviation Partners sued a group of more than 30 insurers for $700 million over planes seized by Russian airlines.
However, in the absence of quantum of losses and estimates of the total exposure to the Ukrainian conflict running into the double-digit billions, uncertainty about the segment of nested aviation policies will react is likely to continue to drive market hardening.
Boeing’s impact on the market
In addition to Russia-related losses affecting the market, Boeing’s recent deterioration in losses will have a knock-on effect on renewals in the all-risks market.
This publication revealed last month that the loss of Boeing had climbed to around $3 billionan increase of approximately $1.3 billion, due to the grounding of faulty aircraft, costs related to the crash of Lion Air Flight 610 in October 2018, and costs related to the loss of Air Flight 302 Ethiopian Airlines in March 2019.
Sources said the manufacturer’s claim is now the largest in aviation market history in nominal terms, having topped $2.5 billion paid after 9/11 – the recent deterioration on a stand-alone basis equivalent to one of the five biggest losses ever recorded. impact the market.
Earlier this year, sources said the all-risk aviation market was on track for a smooth renewal, with risk-adjusted rate cuts achievable for customers, even as they pay rate increases. several hundred percentages on war blankets.
Now sources said the market downturn reflects insurers not fully reserving claims related to Russia’s invasion of Ukraine due to uncertainty and a likely years-long wait for claims are paid.
A source described the lack of booking as “embarrassing”, adding that it makes it seem like no one in the market knows what they are doing.
Reassurance and retro
Aviation reinsurance renewals were already expected to be much tighter due to the conflict in Ukraine, but it has now also become clear that the loss of Boeing will have an impact through deterioration that will largely fall to reinsurers.
A source said the reinsurance market is “feeling the pain” of the loss and therefore the market needs recovery, with sources telling this publication that reinsurers have turned to retrocessionaires to recover some of the loss.
Since April, another key reinsurance renewal date for the aviation market, rates in the reinsurance and retro markets have only “continued to climb”, driving rates up sharply and reducing again the already tight margins.
As a result, direct insurance prices will rise even further to counter rising reinsurance costs, with one underwriter saying that “100% increases won’t be enough to bail out the whole market”.
Overall, increased levels of uncertainty have led to higher costs and general confusion about which direction the market will head next.