January aviation insurance renewals suggest conditions remain favourable for buyers amid plentiful capital, according to a WTW sector outlook for the first quarter.

The broker says momentum from the December quarter is extending into the early 2025 renewals, but it warns “dark clouds” persist and could affect market dynamics.

The outcome of ongoing court cases concerning leased aircraft seized due to the Russia-Ukraine conflict remains a threat. WTW says these disputes may be resolved in a way that passes some claims costs to the reinsurance market.

“In that scenario, capacity could retreat, reducing the supply into the direct aviation market and ultimately leaving less choice for buyers,” the outlook says. “This means there is strong potential for a sharp change in market direction as 2025 progresses.”

Another potential threat concerns last month’s collision between an American Airlines passenger flight and a US military helicopter.

WTW says the crash at Ronald Reagan Washington National Airport is still being investigated, and it will be some time before the effects on the insurance industry are clear.  

“Despite much-discussed dark clouds on the horizon, insurance supply has remained in surplus,” the outlook says. “Those clouds have started to change shape, however, and they are now looming large over the aviation insurance and reinsurance markets.

“In a market that is susceptible to change, it is prudent not to lose sight of the longer-term view.”

WTW says inflation remains a challenge.

“There’s currently a widely shared concern among insurers that the rising costs of smaller or attritional claims, which are typically absorbed before an insurer’s reinsurance program responds, are eating away at margin and leaving little ... to cover major loss events.

“It varies from year to year, but these attritional claims are estimated to represent somewhere between half and two-thirds of the total annual global premium, so insurers have a clear incentive to work with risk managers to find ways of ensuring risks are identified, assessed and mitigated as far as possible before they become claims.”