Underlying factors offer few indications the market will harden in the first half of 2025 and early reinsurance renewals suggest direct insurers are receptive to negotiation as momentum from Q4 shows little signs of abating, according to WTW.
Airline insurers with a spring renewal looked to renew their reinsurance treaties ahead of time in some cases, according to WTW, retaining their anniversary date but accessing reinsurers at the end of 2024.
This has enabled them to negotiate at a time when reinsurers were less diverted by the potential ramifications of decisions in the lessor court cases, said the broker.
Several airliner crashes have taken place in recent weeks around the globe. The collision between an American Airlines flight and a military helicopter at the end of January with the loss of 67 lives is said to have been the first total loss of a US registered commercial jet in the US since 2009, WTW noted.
The dark clouds in question relate to the disputes between leasing companies and their insurers and reinsurers. The current court cases for the leased aircraft that were seized as a result of the crisis between Russia and Ukraine “could be resolved in a way that puts some of the claims on the reinsurance market”.
“In that scenario, capacity could retreat, reducing the supply into the direct aviation market and ultimately leaving less choice for buyers. This means that there is strong potential for a sharp change in market direction as 2025 progresses,” WTW said.
“There are a handful of reinsurance renewals due to be placed in the second quarter, around the time that some of the current court cases are expected to reach their conclusion. This is likely to be the best time to look for indications that the reinsurance market will change direction.”
“That said, the seizure of the aircraft occurred around three years ago, so both direct and reinsurance organizations have had time to assess their portfolios and prepare for various claims scenarios. The bottom line is that at this stage it’s hard to say what will happen until the court cases reach their conclusion,” the broker analysis added.
The January 1 reinsurance renewals are “used as a bellwether” to gauge direct aviation market appetite and direction for the rest of the year, WTW noted.
In a wider context, aviation reinsurers, those who underwrite insurers’ own insurance policies, have performed strongly in recent years and their portfolios appear to have been balanced, allowing sufficient margin to cover the capital costs, the broker suggested.
“This has made aviation reinsurance a generally attractive place to do business, notwithstanding ongoing scrutiny, and there has been buoyant capacity in the sector over the last few years,” WTW said.
Holding pattern
The airline insurance market has the feeling of being “stuck in a holding pattern” due to the “dark clouds on the horizon”, WTW observed.
Despite this, insurance supply has remained in surplus.
“Those clouds have started to change shape, however, and they are now looming large over the aviation insurance and reinsurance markets,” WTW warned.
“The storm has not yet broken though, so as 2025 gets underway, it’s worth reflecting on the many ways the airline insurance market delivered for buyers in 2024 and how it kept underwriters and brokers alike on their toes,” said the broker.
“Momentum from Q4 2024 is set to continue into the early 2025 renewals and opportunities are still available for those in position to seize the moment. The question remains though: how long can the current conditions be sustained?” it added.
Forecast for 2025
“Underlying factors offer few indications that the market will harden in the first half of 2025 and indeed, early reinsurance renewals suggest that direct insurers will be receptive to negotiation as momentum from Q4 2024 shows little signs of abating,” WTW said.
However, the potential resolution of the ongoing Russia/Ukraine leasing claims could “rapidly reduce reinsurer or insurer appetite”, altering market conditions, the broker acknowledged.
“In a market that is susceptible to change, it is prudent not to lose sight of the longer-term view. Buyers should engage proactively ahead of renewal and seek advice from their broker about the mitigation strategies that could come into play if market conditions become more constrained,” WTW added.
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