Aviation insurance draws fresh capacity to temper rate drive: Marsh

The aviation insurance market may be drawing in just enough  new entrants ready to face lingering uncertainties to tame rate hardening going forward through Q2 and beyond, analysts at global insurance brokerage  Marsh have stated.

“The consensus emerging in Q1 2023 is that some of the pre-existing uncertainty within the industry is subsiding,” Marsh analysts wrote in a new report.

Marsh sees “additional capacity in the market is providing new differentials and suppressing rate” in select lines. “For as long as this increased capacity persists, it will likely play a key role in determining the extent of any future rate rises across the industry.”

For airline covers in the London Market, “some uncertainty persists” and the supply side could hang in the balance.

Leery incumbents show a strong interest in protecting premium growth but are increasingly running into newcomers set on taking market share via price competition, Marsh said of the supply side of the story. For two theoretical covers with clean loss history, Marsh estimates market capacity as roughly flat from Q4.

Reinsurance could be the linchpin. “Increased reinsurance costs, retentions, and coverage restrictions have the potential to lead to a reduction in capacity,” Marsh analysts warn. “Should this occur, the impact of reduced capacity available to clients may result in premium increases and further narrowing of policy terms and conditions.”

The demand is comparatively strong as airlines reopen routes and traffic levels continue to normalize. Some loss activity is following along.

For rates in the first quarter, the balance tipped towards the insurers, with weighted average premium changes pushing towards the 30% mark and a mean average change stretching towards a 15% increase.

The general aviation market is focused on inflation plus loss development history, including geopolitical concerns from Ukraine and from Sudan.

“Widespread inflationary pressures are causing significant challenges for most general aviation operators,:” Marsh analysts said, noting the kick-on effects for insurers.

Weighted average premium changes for four-quarters rolling came to 9.8% for general aviation, Marsh claimed.

But those rating conditions in the general aviation market “are largely split.” While conditions for the wider general aviation market “are generally stable,” contingent, hull war, and XS52 risks “can expect increases for the foreseeable future” plus as coverage restrictions and capacity constraints.

The hull war market “presents its own challenges,” Marsh says, noting a heavy flow of capacity out of the space following the outbreak of European war, plus a plethora of visible new entrants attracted by that hope for rate movement. Marsh's underwhelming take: it remains a “somewhat fragile marketplace.”

Hull war has suffered on withdrawals or reductions. AXA XL reduced max line sizes, Chaucer withdrew outright and Hartford announced a departure in February. ADNIC, AIG, PICC, Starr, Talbot, and Argo also figured in reductions versus new capacity from such names as Elseco, Fidelis, Hive and Inigo.

The third-party passenger act of war/hijacking liability market (AVN52) suffered similar line size cuts from AXA XL, Hive and Sompo, withdrawals from Inigo, The Hartford and reductions/withdrawals from AIG, AXIS, Inigo, Lancashire, Partner Re and PICC.

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