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JLT: aviation underwriters remain defiant on pricing

Aviation rates held flat during first quarter renewals as underwriters prioritised profitability above volume or market share, according to JLT’s latest Plane Talking report.

In its study the broker said underwriters were maintaining discipline and that the resolve displayed at renewals in late 2017 had not faded.

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However, despite continued upwards pressure on rates, JLT noted that underwriters were avoiding radical price hikes in a bid to avoid attracting opportunistic capital to the sector.

Across all-risk airline business “tier B” airlines that have high liability limits, low fleet growth and mixed fleets are achieving either flat renewals or small rate increases.

“Tier C” airlines with poor attritional loss records, major losses and adverse loss ratios were subject to rate increases.

Natural catastrophe losses in the second half of 2017 have compounded pressure on aviation rates, placing underwriters under greater scrutiny from management.

“Underwriters are now taking action, prioritising profit in order to correct this position and regain profitability,” the report said.

The hull and liability markets have had a poor start to the year in terms of losses, with three fatal crashes involving turboprop aircraft accounting for 188 fatalities.

JLT added that the newer aircraft types involved could result in “hull claims of equal if not higher value to those that made news headlines”.

A loss-making 2017 helped to drive rates up across the hull war market, making the class of business a hotspot for increases.

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While underwriters dodged losses from a Tripoli airport attack in January, the episode pushed the market to increase call rates for non-Libyan carriers flying to the country.

Rate reductions on hull war are now extremely limited, even for favourable risks.

Accounts requiring large aggregate limits and high sums now typically require all available market capacity in order to complete their placements.

Elsewhere, the report found underwriters are continuing to question the viability of writing excess AVN52 cover – which offers third party liability war cover in the case of hijack – as rates and premium have continued to decline year on year since the 9/11 attacks.

A single loss under this type of coverage would be likely to wipe out multiple years of premium income in this market segment, the report added.

General aviation and aerospace infrastructure

While the general aviation (GA) market sustained a number of serious losses last year, considerable overcapacity makes it unlikely the business segment will see an increase in rate levels, according to the study.

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JLT said larger GA risks were experiencing greater upward pricing pressure because their size made them harder to place in the current market. Rate movements for smaller general aviation placements were harder to characterise because they are mostly placed in domestic markets.

“Underwriters continue to show a good appetite for GA risks but they have become a little more selective and they are seeking out the better value risks,” the report said.

However, the report also pointed to the withdrawal of MS Amlin from the segment as a sign the market may see more carriers pull back from GA.

Finally, the aerospace infrastructure market faces similar pressures to other aviation lines, however the long tail on claims in the class is beginning to produce serious losses.

Apparently profitable years between 2012 and 2016 are now set to be loss-making as a result of multiple large losses including a $148mn award to a dancer who was paralysed after a shelter collapsed at Chicago O’Hare International Airport.

Capacity remains abundant for risks up to a value of $500mn, the report added. Insurers are not offering any form of premium reduction without a significant decrease in risk exposures or loss history.

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