Oversupply of capacity driving down airline hull and liability rates

The airline insurance market remains competitive, with plenty of capacity for hull and liability risks, which is driving rates down, brokers say.

But pricing varies depending on insurer appetite, airline loss history, domicile and area of operations, and less capacity is available for U.S. airlines due to rising claims costs, they say.

The outcome of legal action between aircraft lessors and insurers arising from the confiscation of Western-owned aircraft in Russia following its invasion of Ukraine could prompt rate increases in 2025, however.

There’s an oversupply of capacity, and insurers are competing for market share, said Jason Saunders, Atlanta-based global aviation and space industry vertical division leader, North America, at Willis Towers Watson PLC.

Airline hull and liability programs renewing in the fourth quarter are seeing 5% to 15% rate decreases, Mr. Saunders said.

“We’re generally looking at rate reductions across the board for the airline segment, especially where airlines are seeing exposure growth in passengers and fleet value and have a favorable loss history,” he said.

Renewals are not a “one size fits all,” this year, said Brian Glod, U.S. aviation practice leader at Marsh LLC in New York.

“Some airlines with adverse loss experiences are getting increases in rates and premiums, and those with excellent loss records are getting decreases,” he said.

Average rate changes are “single digit” in either direction, Mr. Glod said. Despite competitive conditions, capacity is “price-disciplined,” and insurers are “not taking a dive just to get any dollars they can to stay on a risk,” he said.

“It’s a buyer’s market,” said Nigel Weyman, London-based senior partner, aerospace, at Arthur J. Gallagher & Co.

Capacity has increased, “rates have softened, and the renewals are providing good results, saving money for airlines. Generally, it’s a very positive environment unless you’re an underwriter, in which case it’s the exact opposite,” Mr. Weyman said.

Recent losses, such as the grounding of the Boeing MAX aircraft and a ground collision involving a Japan Airlines aircraft, have had little impact on the market, brokers said.

Attritional claims activity, though, is rising, which is impacting insurer profitability.

Day-to-day losses that don’t make the news, such as dings on airplanes and bird ingestions, are costing more, while slips and falls and other liability claims “seem to be more costly due to social inflation, and they’ve come back to pre-pandemic levels,” Mr. Glod said.

These are having a “quiet impact,” he said.

While tragedies are rare, when they do happen the cost of compensating for loss of life has increased, and attritional losses are rising significantly, due in part to the higher cost of repairing next-generation aircraft, Mr. Weyman said.

Insurer results remain good, but the specter of litigation between airlines and insurers regarding aircraft leased to Russian airlines is “a huge elephant in the room,” Mr. Weyman said, adding, “the future may not be so rosy.”

After significant rate increases following the confiscation of aircraft by Russia, the hull war market is seeing anywhere from 5% rate decreases to 5% rate increases, Mr. Saunders said.

More capacity has entered the market, making it more challenging for hull war markets to maintain existing terms and conditions and restrictions that they had put in place in the past few years, he said.

The premium pot for hull war could reach an estimated $700 million by the end of the year, he said.

Excess war liability renewals are seeing flat to 20% and higher rate increases, but “there’s still a lot of capacity out there for excess war liability,” Mr. Saunders said.

U.S. airlines are seeing flat to single-digit rate decreases for hull war, while excess war liability renewals are seeing flat to single-digit rate increases, Mr. Glod said.

Given surplus capacity, the positive momentum in the aviation market is expected to continue into next year, unless a major loss or world event occurs, Mr. Weyman said.

The multibillion-dollar loss related to the leased aircraft could also impact the market. “Depending on when that loss falls, it could alter the attitude of the market. It’s quite hard to predict the future with that sword of Damocles hanging over us,” Mr. Weyman said.

That impact could be short-lived, Mr. Saunders said. “Yes, there will be rate increases, but, like everything else, as soon as you see the premium pot go up, it attracts more capacity,” he said.