Howden Re View 1.1 - Aviation at 1.1.25

‘New normal’ loss conditions in the aviation market persisted for much of 2024, with no major all-risk losses occurring but several significant incidents taking place without loss of life. However, a Jeju Air aircraft crashed in South Korea on 29 December, leaving all but two of the 181 passengers dead. This event represents South Korea’s worst civil aviation accident ever and the biggest loss of life from a single aviation loss since 2018.

In addition to this tragic loss, January saw a collision between two aircrafts while taxiing at Haneda Airport in Japan and an Alaskan Airlines Boeing 737 Max 9 losing a door plug and decompressing mid-flight. It was clear that both of these events could have been as equally catastrophic as the Jeju crash under only slightly different circumstances, which underscores the importance of vigilance when assessing large loss scenarios and the ongoing need for reinsurance to protect portfolios.

Aviation attrition also continued to rise, as inflation and price increases impacted new aircraft, spare parts and labour costs.

“These pressures affected even the most profitable direct accounts and highlighted underperformance elsewhere,” said Aviation and Space, Howden Re. Shares in the best-performing accounts and new business were highly sought after throughout 2024. Direct airline lead terms were typically 8% to 15% lower on a risk-adjusted basis as there was invariably more than double the required capacity available. Following insurers aimed to match lead terms, although some were forced to accept terms significantly lower.

Conditions in the standalone war market started to moderate following substantial price hikes in the wake of Russia’s invasion of Ukraine. Aviation hull war rates declined by up to 10% in 2024, as increased competition took hold. Excess war liability rates were largely stable, with little change due to ongoing capacity constraints and high original limits.

In the aerospace sector, risk-adjusted rate movements ranged from down 10% to up 15%. General aviation, with its wide variety of risk types and geographical territories, saw more variable rating changes.

“Despite competitive pressures across all sectors of general aviation, underwriters are still able to find profitable niches,” said Aviation and Space, Howden Re. Pressure on airline ratings last year due to overcapacity, and the broader trend of diversification into areas like general aviation, aerospace and war is expected to continue into 2025. More clarity is also likely to emerge around the multi-billion-dollar legal cases filed by some of the world’s largest aviation lessors. These cases, related to aircraft stranded in Russia following the invasion of Ukraine in 2022, are being heard in multiple jurisdictions and are complicated by the unique circumstances.

Initial loss estimates were as high as US$17 billion, but some confidential partial settlements have already been made between insurers and lessors, as well as aircraft purchases by Russian airlines.

Whilst this could potentially reduce the loss quantum, it could still rank as the largest aviation/aviation war loss in history. Initial court rulings are expected early this year, and depending on the outcome, most insurers and reinsurers are likely to set reserves at this point at time. Despite this overhang, risk-adjusted excess of loss rates remained stable or saw slight reductions in the reinsurance treaty market at 1 January 2025 as reinsurers adopted a ‘wait-and-see’ approach to the Russian leasing cases. Proportional capacity and commission levels stayed largely unchanged for the same reason.