Aviation insurance capacity remains strong but changing market dynamics suggest potential challenges as the year progresses, according to a report from WTW.
For the past few years, the airline insurance market has seen a surplus of supply despite concerns about future market conditions. However, uncertainties in the aviation insurance and reinsurance sectors are becoming more pronounced. As 2025 begins, the market continues to provide opportunities for buyers, but it remains uncertain how long these conditions will persist, the report said.
According to the report, the Jan. 1 reinsurance renewals serve as an indicator of the direction of the direct aviation market. Aviation reinsurers have performed well in recent years, maintaining balanced portfolios and ensuring adequate margins to cover capital costs.
These are indications that some insurers with spring renewals opted to secure reinsurance agreements in late 2024, allowing them to negotiate terms before reinsurers shifted focus to potential claims from ongoing legal disputes.
Meanwhile, ongoing litigation regarding leased aircraft seized due to the Russia-Ukraine conflict could affect reinsurance capacity. If claims are passed onto the reinsurance market, available capacity may shrink, reducing options for buyers.
Several reinsurance renewals in the second quarter of 2025 could provide further insight into how the market will respond. While insurers and reinsurers have had time to assess their exposure, the outcome of these legal disputes remains uncertain. The resolution of these cases could shift market conditions, particularly if significant claims affect reinsurance availability.
Rising costs for smaller claims, which insurers typically absorb before reinsurance coverage applies, continue to impact profitability. These claims account for a substantial portion of annual global premiums, prompting insurers to work closely with risk managers to identify and mitigate risks.
In 2024, airline insurers attempted to increase hull and liability rates, but excess capacity led to rate declines. This trend is expected to continue in early 2025 unless a reduction in available capacity changes the market dynamic.
Despite liability claims from recent incidents, including losses in Azerbaijan and South Korea, these events are not expected to significantly impact the direct insurance market. The collision between an American Airlines flight and a military helicopter in January 2025 may lead to notable liability claims, but the insurance market’s response remains uncertain.
Unless another major loss occurs or the resolution of leasing disputes negatively affects insurer balance sheets, direct insurers are expected to continue negotiating with buyers that have strong risk management practices and favourable loss histories.
Current trends indicate that the aviation insurance market is unlikely to harden in the first half of 2025. Early reinsurance renewals suggest direct insurers will remain open to negotiation.
However, if leasing dispute resolutions reduce reinsurance capacity, insurers may adjust their risk appetite, leading to changes in market conditions. Buyers should engage proactively ahead of renewals and work with brokers to assess risk mitigation strategies in case market constraints emerge, according to the report.
