All material subject to strictly enforced copyright laws. © 2021 Insurance Insider is part of Euromoney Institutional Investor PLC.
Accessibility | Terms & Conditions | Privacy Policy | Modern Slavery Act | Cookies | Subscription Terms & Conditions

Aviation market resilience tested to the limit: JLT

Leading aviation broking house JLT has warned that while underwriters remain confident about the inherent safety of airlines, another major claim on top of recent losses could cause "extreme market reactions".

In its latest "Plane Talking" report the broker warned that, with five months to run this year, the risk of further losses remained.

"Recent events have demonstrated how fragile the market is and insurers' resilience to react in a measured and reasonable way has been tested perhaps to the limit," JLT said.

However, the broker warned against a market overreaction to the recent string of disasters, advising that pricing could come under sharp pressure again if airline insurers pushed too hard on rates. JLT is therefore urging insurers to think about recent events in the light of the five-year and 10-year loss picture.

"If this approach is adopted, the increase will be measured and modest, and probably sustainable [enough] to allow the market to restore itself to financial health," the report said.

"If increases are too high they will, in our opinion, result in a subsequent collapse and cause new capacity, dormant capacity and captive capacity to move into the market."

Elsewhere, JLT cautioned: "If increases are too harsh they will not last and history tells us that rates will likely fall quickly and dramatically, upsetting the long-term stability of the market."

The airline all-risks market has suffered a string of major losses this year including Malaysia Airlines flights MH370 and MH17, as well as Air Algérie and TransAsia Airways claims. The war market has also been devastated by a string of events including fighting at Tripoli Airport and the loss of LAM Mozambique Airlines flight 470.

JLT stressed that although it had sensed a change in market sentiment, it was too early to get a clear measure of the size of the impact.

"There is currently great uncertainty in the aviation market as to the extent of the change and the long-term condition of the market, with the severity of the effect largely dependent on the balance between those talking tough on pricing and those others taking a calm and reflective view."

However, core rates were expected to increase, according to the broker.

JLT said there was "significantly more pressure" in the niche hull war market because of the huge losses suffered this year, amounting to many multiples of the current premium level.

But the broker again lobbied for restraint even under these circumstances, for the same reason of favouring long-term sustainability over short-term extreme treatment.

The movement in rates would be "distinctly more severe" in this area than in hull and liability, JLT warned.

Significantly, despite the string of losses, no capacity appeared to be withdrawing at this stage because markets were anticipating some degree of premium increase.

However, if rate increases didn't materialise some markets would withdraw or reduce their involvement in the class.

JLT said it expected the same levels of coverage to be available going forward, although it noted that insurers had been looking at sub-limiting search and rescue even before the latest losses.

Sources have told The Insurance Insider that this is an area where insurers are likely to push, following the extraordinary cost of the failed operations to locate the wreckage of the MH370 hull. Tightening is also being considered on loss of use clauses, deductibles and personal injury definitions.

Last week this publication reported that Allianz, one of the major leads in the market, is quoting airline business with rate increases of 30-50 percent.

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree