Aviation insurance market shrinks in 2016 as underwriters try to stem losses
The aviation insurance market has contracted significantly in 2016 as insurers tried to reduce their exposure to loss-making contracts and improve underwriting profitability, according to the latest “Plane Talking” aviation newsletter by JLT.
The combined lead hull and liability premium declined by 7 percent in 2016, finishing at around $1.2 billion, the lowest figure seen since 1999, according to JLT.
“If the contraction in capacity is real (and it has been temporary on many occasions) and the appetite for the different categories of the portfolio remains meaningfully diverse then we could see the turning point in a cycle that has been on a downwards trend since the all-time highs of post 9/11,” said Nigel Weyman chairman aerospace of JLT Specialty.
The broker claims, that conditions in the aviation insurance market are showing early signs of hardening and a shift in favour of the underwriter.
Rates and premiums in the airline insurance sector have been steadily falling since 2002, and whilst this downwards trend continued throughout 2016 it is evident that a more resistant and disciplined market is developing, according to JLT.
Underwriters are now seemingly more determined than ever to bring about a change in conditions. They made a concerted effort in 2016, showing greater discipline and being increasingly selective. To some extent this was successful as it tempered reductions somewhat, in comparison to prior years. However the effect wasn’t significant enough to halt the overall downwards direction, according to the newsletter.
JLT divides the aviation insurance market in three segments. In Tier A, which comprises airlines with typically low-limits, single type fleets/smaller narrowbody aircraft and generally good loss record, the market is still soft, but hardening. Airlines are still achieving rate reductions based on individual levels of growth. Higher capacity is available due to lower limits.
The Tier B group comprises mainly airlines with high-limits, often mixed fleets/large aircraft and variable loss records. In this segment rates are getting closer to what would be considered hard. Renewals are generally flat, capacity levels are restricted due to high-limits. Differentials between lead and following prices are being squeezed.
The third group comprises airlines with major losses and with negative exposure growth. Here rates are already considered hard but the trend is intensifying. Airlines in this segment are receiving rate increases and penalties. Capacity is now extremely limited and companies are receiving added scrutiny from underwriters.
“Whilst the low cost carriers/low-limit buying airlines have enjoyed significant rate reductions, the high-limit/legacy type carriers have pretty much bottomed out and had very modest reductions, if any at all,” Weyman said. “Then finally there are the ‘more challenging renewals’ (those with loss records that are consistently exceeding the premium) which have been subject to very substantial increases.”
