Analysts at Aon have said that the aviation market experienced its most challenging renewal in over two decades at 1/1, with significant rate increases and coverage restrictions.
In a new report on January reinsurance market dynamics, the broker noted that insurers with reinsurance renewals in 2023 face an “uncertain market”, with potentially substantial Russia-Ukraine aviation losses still unresolved.
However, depending on how losses develop, aviation reinsurance capacity could come under pressure, while reinsurers are likely to seek higher retention levels from some clients at future renewals.
Across the industry, 1/1 is known for being a key renewal for the sector with a number of major aviation insurers securing their reinsurance protection.
Analysts noted that while reinsurance capacity remained sufficient to meet demand at 1/1, it came at a price, as rate-on line at the renewals increased significantly for aviation excess of loss reinsurance, while catastrophe layers experienced some of the highest rises.
Terms and conditions also faced pressure at the renewals, as reinsurers moved to limited aviation grounding coverage and third-party war coverage in all-risk covers.
Aviation reinsurers are now excluding war risks from aviation covers outside the specialist war market. However, aviation war reinsurance capacity was majorly constrained at 1/1, as most insurers were unable to buy desired levels of war reinsurance cover.
Additionally, 1/1 follows a period of unprecedented losses for the aviation market, namely from the recent material reserve deterioration on a historic large aviation claim, as well as uncertainty surrounding potential claims arising from the ongoing Ukraine & Russia conflict.
Analysts added that the historical loss – the largest ever single loss event for the aviation market – equates to over a decade of aviation reinsurance market income, with the majority borne by the reinsurance market.
Further, in contrast to reinsurance, aviation insurance rates stabilized in 2022 following several years of increases.
Aon stated that aviation insurers are now facing the prospect of passing on significantly higher reinsurance costs to policyholders.
Aviation is a sector that is particularly dependent on reinsurance, with some carriers ceding as much as 80% of their business to reinsurers.
Lastly, capacity mostly remained adequate at 1/1, but aviation reinsurers reduced their line sizes, in part due to limited availability of retro cover. With competition in aviation reinsurance somewhat dampened, Aon added that it has been working to build new reinsurance capacity.