Aviation market shows signs of hardening

Aviation renewals in November has shown a tightening of underwriting discipline, suggesting a change in soft market conditions.

Whilst theoretical capacity levels haven’t reduced, available capacity at a competitive level of pricing has become very limited, JLT said in its November ‘Plane Talking’ aviation newsletter.

Markets are now prepared to reduce their overall line sizes if they are not happy with the level of pricing offered, despite any long-term relationships that they may have, according to the report. Underwriters are declining more risks due to pricing, regardless of any negative effect on their premium income. These factors mean that a large portion of available market capacity now exists in a dormant state, waiting for its required criteria to be met before it returns, according to the report, suggesting that this might signal the end of the soft market.

Overcapacity in property/casualty has contributed to low rates in the aviation market, but there are increased signs that market conditions are changing as higher underwriting discipline/selectivity is having a greater effect on pricing, according to the report.

As conditions and pricing are becoming increasingly segmented it is no longer viable to report monthly average figures for the market as a whole, according to the authors of the report. Nevertheless, JLT’s overall subjective summary is that it is becoming more and more difficult to place airline business with aviation underwriters at the competitive terms that the market has become accustomed to.

Rates have hardened in all three tiers into which JLT divides the aviation market, according to the November report.

Rates are already considered as 'hard' in the Tier C segment, which combines airlines affected by major losses and airlines with poor attritional loss records.

Market rates are getting closer to what would be considered as ‘hard’ in the Tier B category which comprises airlines with high-limits, often mixed fleets/large aircraft, typically showing low fleet/ traffic growth and variable loss records.

Still soft but getting closer to what would be considered hard is the business in the Tier A segment, which comprises airlines with low-limits, often single type fleets/smaller narrowbody aircraft, typically showing high fleet/ traffic growth and generally good loss record.

Around half of the airlines on the November renewals list have fleets valued over $1 billion and amongst them were some of the biggest carriers in the world. November and December are the months that ultimately dictate the annual statistics and determine the direction the market will take as we enter the new year, according to the report.