General aviation laps up carrier capacity while airlines grounded
Airline aviation insurance remains “delicately balanced” as rather selective utilisation of capacity defends or increases insurance rates, albeit to the benefit of the general aviation market where excess carrier capacity has flowed more freely, analysts at Gallagher Specialty have claimed.
“The airline insurance market remains delicately balanced,” analysts wrote in a report on Q1 trends, citing a market where overall capacity may have increased notably over the past 12M, but not all placements enjoy the benefits. All risk covers may be more stable, albeit with varied results by account. Hull war and third-party war liability are tighter, with rates still on the rise for airline clients.
“Theoretically, capacity levels have increased for all placements, but actual deployed capacity varies greatly,” authors wrote. Accounts with low limits and good loss ratios are in demand. Larger accounts with higher limits, more liability exposure and higher loss histories “will typically find reduced levels and fewer options.”
Q1 trends on all risk accounts are a tougher read for the lower renewal activity, but available signs suggest little change from end-2023. “The All Risks results of Q1 continue to present a more favourable market for buyers albeit highlighting notable rate variation between each risk,” authors said, citing pricing spanning from reductions to increases.
Hull war and war liability for airline clients is a much clearer read of uninterrupted hardening. “Recent losses and heightened global tensions/volatility is keeping strong pressure on this class and consequently capacity remains tight.” Some willingness to negotiate price may have appeared in best cases, authors said of a trend they are “hopeful” will continue moving forward.
For airline clients, Gallagher expects “continued uncertainty, challenges and added renewal complexities” resulting in continued variation by client and by sub-line.
What isn't easy for airlines, may be making things easier for general aviation clients, Gallagher suggests in its research. Increased capacity has held and continued to put downward pressure on rates.
A sizeable portion of capacity comes as specialty insurers look to diversify “having reached a saturation point in the airline sector,” authors wrote. A hiring spree amongst aviation carriers also suggests that appetite in general aviation “is a long-term play”.
“The significant increase in available capacity in the sector, during 2023, has had the inevitable effect, of rate reductions in most areas of the business,” authors wrote. “This trend looks to continue and potentially accelerate, as insurers review their 2024 business plans in a challenging environment.”
Multi-year deals may be the next big thing for the current softening market, authors wrote.
Barring major jarring events, “all indicators point to a further softening of rates throughout 2024”.
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