Aviation market navigates ‘new normal’ with ongoing challenges for 2025: Howden Re

The aviation industry had a mixed year in 2024, with ‘new normal’ loss conditions persisting for much of the year and marked by a tragic crash in South Korea as well as ongoing uncertainty surrounding the fate of aircraft stranded in Russia, Howden Re has noted in a recent report.

Despite a year largely free of major losses, the Jeju Air disaster in December served as a stark reminder of the industry’s inherent risks. The crash, which claimed 179 lives, is South Korea’s worst civil aviation accident and the deadliest globally since 2018.

In addition to this tragic loss, January saw a collision between two aircrafts while taxiing at Haneda Airport in Japan and an Alaskan Airlines Boeing 737 Max 9 losing a door plug and decompressing mid-flight.

“It was clear that both of these events could have been as equally catastrophic as the Jeju crash under only slightly different circumstances, which underscores the importance of vigilance when assessing large loss scenarios and the ongoing need for reinsurance to protect portfolios,” the report stated.

The year also saw continued upward pressure on aviation attrition, driven by inflation and price increases across new aircraft, spare parts, and labour.

“These pressures affected even the most profitable direct accounts and highlighted underperformance elsewhere,” said Aviation and Space, Howden Re.

The reinsurer explained: “Shares in the best-performing accounts and new business were highly sought after throughout 2024. Direct airline lead terms were typically 8% to 15% lower on a risk-adjusted basis as there was invariably more than double the required capacity available. Following insurers aimed to match lead terms, although some were forced to accept terms significantly lower.”

Meanwhile, the standalone war market saw some moderation following significant price hikes in the wake of Russia’s invasion of Ukraine.

According to the report, increased competition led to aviation hull war rates declining by up to 10%, while excess war liability rates remained largely stable, with little change due to ongoing capacity constraints and high original limits.

In the aerospace sector, risk-adjusted rate movements ranged from down 10% to up 15%. General aviation, with its wide variety of risk types and geographical territories, saw more variable rating changes.

Looking ahead, the industry faces continued pressure from overcapacity and the looming shadow of multi-billion-dollar legal cases related to aircraft stranded in Russia.

Initial loss estimates reached a staggering US$17 billion, but confidential settlements and aircraft purchases by Russian airlines have introduced some uncertainty.

“Whilst this could potentially reduce the loss quantum, it could still rank as the largest aviation/aviation war loss in history,” Howden Re noted.

Court rulings on these cases are expected early this year, which will likely trigger reserve setting by insurers and reinsurers, the report highlighted.

Despite this uncertainty, risk-adjusted excess of loss rates in the reinsurance treaty market remained stable or saw slight reductions at the 1 January 2025, as reinsurers adopted a ‘wait-and-see’ approach to the Russian leasing cases.

Proportional capacity and commission levels stayed largely unchanged for the same reason, the report added.

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