The 2022/2023 aerospace reinsurance renewals season is a chance to re-set retention levels, policy conditions and pricing levels to enable the Global aerospace insurance market to continue to serve its end-user client base.
- Pressure on improving their margins is inevitably forcing many of them to scrutinise and re-calibrate their aerospace pricing models
- Inflation continues to be the top concern for insurers
- The consequences of war in Ukraine will inevitably influence all Aerospace insurance providers
According to Gallagher, this opportunity presents itself as this renewals season for the global insurance market has been specifically affected by the War in Ukraine, the on-set of a global economy recession and rising inflationary costs unparalleled over the past 40 years.
With upwards of 100,000 flights taking off from many thousands of airports across the globe every day, and new objects being launched almost daily to join the roughly 5,000 satellites already in space, the scale and nature of aerospace risks faced by primary insurance writers are constantly changing (see about Space & Satellite Insurance).
The diversity of the underwriters’ aerospace risk portfolios helps provide many direct insurers with a natural spread of risks which continues to be attractive to insurers.
Pressure on improving their margins is inevitably forcing many of them to scrutinise and re-calibrate their aerospace pricing models, while they are also impacted by external global headwinds.
Inflation continues to be the top concern for insurers. It is challenging to insurers, analysts explain, because it erodes nominal premium growth, impacts global demand and creates higher claims costs (see Space Insurance Industry Outlook: Price & Coverage).
In a sector heavily dependent on specialist materials such as composites and high value aerospace engineering skills, rising claims costs will be a major concern for aerospace insurers.
Add to these pressures the general rise in social inflation and global supply chain issues and it is easy to understand why many aerospace insurers are pressing for premium rate increases.
Regarding the Russia-Ukraine War, the situation has not affected the General Aviation sector in the same way as it has impacted commercial passenger services and the commercial passenger aircraft leasing sector.
The full extent of insurance and reinsurance losses stemming from the war between Russia and Ukraine remains a murky subject with many unknown factors, but analysts at Fitch Ratings are confident that the war will prove to be a “contained risk” for the market.
Despite this, the consequences of this conflict will inevitably influence all Aerospace insurance providers.
With the onset of legal proceedings just beginning to address the complex leasing issues and policy coverage, every prudent insurer and reinsurer is reviewing their loss reserves.
While there are many external factors to consider, insurers continue to place great importance in proven operational management expertise and safety management systems and culture.
It is estimated that the commercial space industry will be worth USD 1 trillion by 2040, up from USD 350 billion currently.
Activities that will emerge and intensify range from the private launch of rockets for tourism and commercial payloads, to space stations and space mining.
Most importantly, commercial interest is focused on satellite systems enabling ever more data services on Earth. This includes broader internet access and data services, such as navigation and climate change and weather monitoring.
As the global aerospace emerged from the most dramatic shut-down in the industry in history, there were considerable concerns around skill-fade and lack of currency.
Those aerospace operators with robust management and SMS were more able to meet the immediate and continuing upswing in demand for services across most aerospace sectors.
The aviation industry has seen significant expansion over the last 20 years. Airlines, aircraft manufacturers and service providers require increasingly larger limits of liability. Each segment of the aviation industry faces a range of different perils, each with unique loss profiles.
Investments in safety and training by any aerospace operator continues to pay dividends when negotiating with insurers as the survival of the operationally fittest businesses will be a long term structural benefit to the industry and the supporting insurance sector.
Greater uncertainty arising from global issues, like the COVID-19 pandemic and the Russia-Ukraine war, is driving more conservative reserving approaches in the global reinsurance industry.
Before the severe property catastrophe losses in 2017 and 2018, AM Best analyst’s noted how reliant companies had become on prior years’ reserve releases, and highlighted the risk of becoming too complacent.
Pricing margins were clearly inadequate, but the actual picture was distorted by the effect of positive loss reserve development from previous accident years.
AUTHOR: Oleg Parashchak – CEO Finance Media Holding