The aviation reinsurance market continues to grapple with challenges and uncertainty, according to global reinsurance broker Gallagher Re’s latest report on the aviation insurance market.
While there are some signs of improvement in aviation retro capacity levels, the overall landscape “remains fragile”.
Pricing in the aviation reinsurance market has been hardening as a result of major loss deterioration observed in the last quarter of 2022.
This trend has continued into 2023, with further upward pricing adjustments for new programs aligning with earlier renewals.
The tightening of capacity in the retro market at the beginning of the year was notable; however, the recent withdrawal of Tokio Marine from this segment has raised concerns.
The departure of a major participant in this small market segment is expected to have a significant impact. Consequently, pricing levels are anticipated to remain at their current high levels, placing continued pressure on first-tier excess of loss (XOL) pricing.
While the direct insurers have not yet reacted strongly to the increased reinsurance pricing, the pressure is mounting as profit margins are squeezed due to a softening of airline All Risks rates combined with the hardening reinsurance rates.
Gallagher Re warns that direct insurers could face challenges in meeting their year-end targets if profit margins continue to shrink. In such cases, some insurers may be forced to scale back operations or even exit the market in 2024.
Beyond the pricing challenges, the report also highlights additional uncertainties. Reinsurance challenges persist, and concerns over lessor claims in Russia loom large, posing a threat to the market.
