In a recent analysis of the aviation reinsurance market, Guy Carpenter highlights key trends that are shaping the industry.
The report sheds light on several noteworthy developments that are influencing insurers and reinsurers alike.
Guy Carpenter’s analysis reveals a growing disparity between the aviation insurance and reinsurance markets. Notably, there have been substantial pricing increases in cat-focused excess of loss (XoL) reinsurance. Conversely, the direct insurance market is witnessing rate reductions in certain segments.
Despite the market’s fluctuations, reinsurance appetite remains robust. Capacity is generally sufficient, even for sub-classes like hull war and excess AVN-52 exposures, which have traditionally posed challenges.
To mitigate price increases and adapt to tougher terms and conditions, insurers are making adjustments to aviation program coverage. This includes reducing cessions and increasing retentions, reflecting a trend towards tighter coverage.
Overall, the report suggests that reinsurance capacity should remain relatively stable. However, it raises concerns that reinsurers might reconsider their proportional capacity if direct insurance rates decrease further, questioning the adequacy of their ratings.
Claims inflation is emerging as a significant factor influencing market dynamics. Ian Wrigglesworth, Head of Aviation & Aerospace Specialty, points out that claims inflation has been on the rise in recent years.
Factors contributing to this increase include advances in aircraft technology, inflation, fluctuating currency exchange rates, a shortage of skilled labor, and longer supply times, all of which contribute to higher aircraft repair costs.
Reinsurance buying strategies are evolving in response to market shifts. Andy Edwards, Managing Director, Aviation & Aerospace Specialty, notes that aviation insurers are focusing on maximising profitability and carefully balancing their portfolios across airline, general aviation, and aerospace business segments. As a result, they are continually adjusting their appetite for each class of business.
Wrigglesworth emphasises Guy Carpenter’s role in assisting cedents by providing insights into their exposures and helping improve portfolio mix. This includes identifying key pricing influencers and ensuring that reinsurance buyers have a clear underwriting strategy, including firm “walk-away” criteria.
