Aviation insurance competition heating up despite reinsurance pressure
Underwriters are under pressure 'to be more flexible on price than they perhaps would like to be'
Increased capacity is driving price wars on sought-after accounts, but hardening reinsurance market could lead to market exits, Gallagher says
Increased all-risks capacity is leading to “pricing wars” on some airline renewals, according to broker Gallagher.
The broker said insurers’ focus on income growth coupled with the additional capacity that has entered the market in recent months is driving competition.
This is pressuring underwriters “to be more flexible on price than they perhaps would like to be given market challenges,” Nigel Weyman, aerospace global executive at Gallagher, said in a new report on the sector.
“In line with the rate softening that we are now experiencing in this class, in recent months, we have observed ‘pricing wars’ on some accounts with underwriters seeking to undercut their competitors in order to secure line participation,” Weyman said.
The fourth quarter of the year is a key renewal period for the aviation sector and underwriters are expected to become more determined to maintain their positions and hit their premium targets as the year progresses. “This should only serve to fuel competition and keep pricing in check,” Weyman said.
But the broker also warned that rising aviation reinsurance pricing could lead to some airline insurers exiting the market next year.
“With airline all-risks rates softening and reinsurance rates hardening, profit margins will be squeezed and direct insurers will be under increasing pressure to react in order to achieve their target income levels,” Weyman said.
“Should some direct insurers fail to meet their year-end targets then this could lead to scale-backs or market exits in 2024. It remains a fragile marketplace.”
'In line with the rate softening that we are now experiencing in this class, in recent months, we have observed ‘pricing wars’ on some accounts with underwriters seeking to undercut their competitors in order to secure line participation'
Nigel Weyman, Gallagher
Capacity in the aviation retro market has tightened this year with the withdrawal of Tokio Marine, which will increase the pressure on the reinsurance market, particularly on first-tier excess-of-loss pricing. But there were “some signs” of other reinsurers looking to enter the sector.
Aviation reinsurers are understood to have become frustrated by the inability of primary insurers to improve the rating environment. This prompted reinsurers to shrink quota share capacity, increase excess of loss rates and tightening coverage in order to “stimulate rate improvement in the aviation insurance market going forward”, Gallagher Re said in a report published earlier this week.
Meanwhile, pricing on aviation war covers is expected to continue to rise in the short-term.
War capacity has decreased over the past year following the war in Ukraine driving rates up. But a prolonged period of increases and higher premiums is starting to entice new capacity back into the market, Gallagher said.
“We have witnessed several new entrants and a slight uptick in line sizes in recent months, which has helped to ease pressure and curtail any additional upwards rating movement,” Weyman said.
“Rates are still increasing and insurers continue to stress that the current premium base for this class is inadequate, so looking ahead we expect underwriters will remain disciplined,” he added.
