Research

Insurance Marketplace Realities: Aerospace

2018 Spring Update on Commercial Insurance in North America

April 12, 2018

Price prediction

  Trend Range
Airlines: Up Flat to +10%
Product manufacturers/service providers: No change or slightly down –5% to flat
General aviation: No change or slightly up Flat to +5%
Financial institutions/lessors: Down –5% to –10%

Key takeaway

The 2017 Q4 airline renewal season has set the tone for 2018 and beyond. The firming of this marketplace will likely remain, as it follows wider insurance market trends.

The extended soft market may be slowly coming to an end for the airline sector, and rates continue to come down for product manufacturers and space risks.

Airlines

  • 2017 was one of the costliest years on record for the broader property and casualty (P&C) market, which will have an effect on many insurers’ reinsurance programs as they renew their treaties in 2018.
  • Underwriters have experienced diminishing returns for several years. Without a single fatality, 2017 is on record as one of the safest years for commercial airlines; however, the sum of worldwide claims is only marginally less than the worldwide premium, which will be around $1 billion. Attritional claims now comprise almost 70% of all airline claims. This means underwriters that write the entire portfolio will not make a profit.
  • Several underwriters have already ceased writing airline business until premiums reach a more sustainable level. We will also likely see some mergers and acquisitions of some P&C underwriters.
  • We should expect to see a slight upward trend in pricing for 2018, especially for airlines with losses. The market will harden much quicker should there be a significant loss.

Product manufacturers/service providers

  • This segment continues to remain competitive for buyers, with plentiful capacity from both domestic and international insurers.
  • Despite large recent losses related to grounding liability claims, appetite remains strong for core aviation products and service provider business. Insurers find component product manufacturers particularly attractive. However, we see some signs of market resolve, especially from the international markets based in London and continental Europe, to stop reductions.

General aviation

  • With the hardening market, relationships with carrier partners are key.
  • Several large liability awards have been rendered recently, so now is a good time to review current liability limits to see if an increase is in order. Excess coverage is competitively priced, so many clients are looking at excess policies to increase their liability limits.

Financial institutions/lessors

  • Market capacity is eager to participate in this profitable and growing class of business.
  • U.S. underwriters are increasing their participation in the class, and London market interest is growing.
  • Pricing is very competitive.
  • Coverage terms can vary; therefore, buyers need to be clear on the full scope of their exposures.

Space

  • The satellite insurance market in early 2018 remains highly attractive to the insurance buyer despite a recent spate of launch and in-orbit anomalies that could yield significant claims.
  • New launch vehicle variants are being introduced by existing and newly established providers, and insurers are responding competitively to these new risk profiles.
  • Similarly, existing and new satellite manufacturers are offering diverse satellite products for geostationary-Earth orbit (GEO) and low-Earth orbit (LEO) missions.
  • Large GEO satellites will continue to represent a share of insured risks, but technological advances and current business demands are leading to increased frequency in launch activity— with many launch vehicles providing multi-satellite rideshares, as well as a growing focus on smaller, lower value satellites often manufactured by emerging companies.
  • Such activity represents perhaps the greatest new opportunity for space insurers in a generation.
  • Due to the sector’s overall profitability in recent years — and irrespective of either the natural catastrophe losses in Q4 2017 or recent space losses — retraction of any space insurer capacity in 2018 seems unlikely. Significant overcapacity seems likely to continue the downward pressure on rates, which had reached record lows for both launch and in-orbit risks by the end of 2017.