At the end of last year, it was evident that conditions in the aviation insurance market had diverted from the long-term downwards ratings trend and we were experiencing a tougher market environment. The real question was, how this transition would develop. With the first quarter of 2018 now at an end, we can report that the markets resolve has not faded.
For the first time in many years underwriters are maintaining their position and pricing discipline. Underwriters now seem committed to preventing a further decline in aviation insurance rates, working to stabilize them at a level they believe is more sustainable in the long-term.
In general rates are holding flat and aviation underwriters are, at least for the moment, continuing to prioritize profitability above volume or market share, declining any risks they feel are inadequately priced. Underwriters appear to be taking a measured approach this time around, perhaps mindful that an attempt to raise prices too steeply would undoubtedly lead to an influx of opportunistic market capacity and a return to a downwards trend.
Capacity remains varied by risk and price and levels are still relatively stable. This is perhaps due in part to the recent uptick in the rating trend. Merger and Acquisition (M&A) activity is another interesting factor to monitor closely in the coming months.
Taking the above into account, we must still be mindful that at this early stage of the year, airline renewal activity has been limited and so the current market environment may not yet transpire into a longer-term market trend. The next big test of the markets resolve will come in July when a number of major airlines and insurance groupings come to renew.
For more information, please contact Steven Godfrey, Aviation National Specialty Leader, Managing Director at ClientFirst@jltcanada.com.