State of Aviation Insurance Industry

By Pilot & (Re)insurance Specialist Mr. Simba Makwembere

The start of the year 2020 was met with unexpected turn of events as brought by the COVID-19 pandemic.

If we take a step back, we realise that the aviation insurance market had started to hardening in 2017 due to some major losses which included the North Atlantic hurricane season. Although the impact of the losses and events were not “capital” events, they had a direct impact on premium ratings and capacity deployment in the global insurance marketplace, accelerating the end of an enduring ‘soft underwriting cycle’ with the aviation class of business right at the fore front of market hardening characterised by excessive decline in insurance capacity and increase in reinsurance pricing.

Further, losses and the direct impact of the COVID-19 pandemic on the aviation industry during the second half of 2020 led to extremely difficult negotiations between clients and the insurance market, carriers having to deal with the impact of grounded fleets whilst still negotiating an enduring “hard” insurance market and increased premium ratings as insurers maintained 2020 business plans signed off before the start of the COVID-19 era.

Fast forward to end of 2021, we now see renewed signs of optimism in the commercial aviation industry. Although social and travel restrictions still exist, air travel has started to pick up globally as many travellers seek to travel internationally for business and leisure, however air traffic is still far from pre-COVID-19 levels. Insurers and reinsurers alike have assisted the industry by easing pressure on premium rating increases in light of reduced air traffic and general difficulties in travel conditions. The insurance market is now experiencing a deceleration of rate increases into single-digits; subject to risk and performance, negotiations are now concluding to more acceptable levels for both insurers and clients. (Re)insurers have enjoyed a relatively quiet 2021 from a loss performance point of view. The general profitability of the industry has resulted in increased capacity as new capital entered the market and existing providers wishing to write more business.

In terms of General Aviation which is defined by the International Civil Aviation Organization as all civil aviation aircraft operations with the exception of commercial air transport or aerial work, which incorporates mainly small crafts and helicopters, there are brighter times ahead as we have seen a shift towards chartered travels by the middle income and affluent clients in the awake of social distancing brought by COVID-19. The increase in insurance demand as seen by general aviation insurers together with the relative low claims activity witnessed in 2021 until now has resulted in the deceleration in rate increases thus mirroring the softening market conditions being experienced in commercial aviation market.  The old adage of “Size and volume of premium matters” has seen a return of Long-Term Agreements (LTA) – not seen for some 5-10 years – return on major risks accepted by some insurers. The major market risks with good claims performance are also receiving ‘As before’ ratings.

The softening of the aviation insurance market we are witnessing is quite unique in the sense that although there is deceleration in rate increases, underwriters are on the guard paying greater attention to technical policy conditions as well as ensuring that minimum earnings are respected. This discipline in underwriting is coming at the back of underwriters’ understanding that a major market loss could destabilise the bottom line.

In Africa, our primary market, we have seen an increased number of new prospective investors looking at investing and entering in the commercial space taking advantage of some failed operators due to COVID-19, opening of new routes and general low prices of buying second hand aircrafts. Demand of financial structures to buy new equipment backed by insurance financial guarantees is on the rise.

It is in these times that the role of specialist insurance and reinsurance broker has never been more important for clients – relationships with global insurers and reinsurers that have appetite for Africa aviation risks, technical expertise to structure new programmes and risk financing division to provide the require guarantees.

For more info regarding our Aviation insurance and reinsurance solutions, contact our Aviation Specialist team – Adelaide Ndlovu on Tel +27 11 805 0086 or Email: info@maksure.co.za.

About Maksure Risk Solutions

Maksure Risk Solutions is an Afro-Global independent specialist insurance and reinsurance broker with business footprint in Africa, Asia, East & Western Europe, South America and the Caribbean. We provide innovative and tailor-made risk solutions in Insurance and Reinsurance as well as Risk Financing and Actuarial Consulting geared towards capital management and strengthening our client’s balance sheet. Maksure is also one of the major players in Captive Management (Establishment & Management) in South Africa, Mauritius, Bermuda and various other jurisdictions. We have access into the Lloyds of London with a deep understanding of African markets. Our global nature ensures that our clients access quality capacity as well as some of the world’s latest thinking and solutions

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