The aviation industry is facing turbulence due to the war in Ukraine, inflation, and energy crisis (mainly in Europe), which is probably the largest individual loss ever to hit areas of the aviation insurance market. Inflation is increasing costs across the industry and challenging insurers as it affects nominal premium growth and global demand. The aviation sector is heavily dependent on specialist materials such as composites and high-value aerospace engineering skills, leading to rising aircraft values and increased repair costs.
Aerospace and Infrastructure
During Q4 of 2022, the insurers were in a positive position due to sufficient market capacity and competition on price to maintain market share. However, by the end of 2022, the market faced “dark clouds” as insurers started to increase premiums. The previous 10-year period was unprofitable due to major claims, causing insurers to harden their pricing strategy. The dramatic increase in the Boeing Max loss, which is approximately USD 1 billion in reserves, affected the aviation market as a whole and led to price adjustments. Some insurers were instructed to increase renewal premiums by 10-15% or not to renew conditions. Retaining current business was considered more acceptable than winning new business or increasing share of existing business.
Airlines that disappeared from the sky in 2022
Some airlines decided not to resume flights while others stopped them permanently within a few months of resumption.
In 2022, air transport resumed with the lifting of restrictions, but many airlines faced financial difficulties due to the pandemic. Some airlines decided not to resume flights while others stopped them permanently within a few months of resumption. A list of more than 20 airlines that ended flights in 2022 or were expected to be liquidated was published by Airways.cz. The reasons for termination included the impact of COVID-19, unpaid fines, lack of cash, overall financial problems, company restructuring leading to liquidation, and international sanctions due to Russian ties. These included Blue Air, CargoLogicAir, CargoLogic Germany, Comair, Onur Air, and Royal Flight.
General Aviation is a strong and growing sector
The global airline sector is still recovering from the pre-COVID-19 level, while the General Aviation sector is optimistic about growth. Corporate business jets, rotor wing aircraft, air ambulances, and small commercial operators are recovering better than commercial airlines. Private aircraft offer more comfort, hygiene, better connectivity, and improved service compared to commercial air transport. There is increased demand for commercial helicopters and replacement of older fleets, driven by local factors such as the promotion of drone technology for goods and service delivery. Every innovation and technology have risks, but for an aviation insurer with a spirit for the future, it offers an opportunity to rethink their business focus.
The global insurance outlook
Insurers and reinsurers are reviewing and renewing their business at the end of the year in December and January.
Insurers and reinsurers are reviewing and renewing their business at the end of the year in December and January. The 2022-2023 renewal period is affected by the military conflict in Ukraine, beginning of a global economic recession, and rising inflation, unprecedented over the past 40 years. This provides an opportunity for insurers to review deductible levels, policy terms and conditions, and pricing policy. The diverse market still offers attractive insurance conditions, but pressure to improve margins and increase market share is forcing many insurers to examine and re-evaluate their pricing models.
Will Light Shine Through the Dark Clouds?
Rising Costs and Geopolitical Tensions Ahead for Airlines and Aviation Investors
In the coming year, the outlook for airlines and aviation investors will continue to be affected by rising costs and geopolitical tensions. Major UK and European airlines have already revised down their expectations for 2022 and 2023 and reduced capacity guidance by as much as 20% or more due to operational capacity.
Furthermore, the 2023 Global Business Travel Forecast by Carlson Wagonlit Travel and the Global Business Travel Association predicts that airfares will rise by more than 48% in 2022, followed by an 8.5% increase next year to cover high costs.
Low-cost carriers, on the other hand, appear well positioned to weather the economic shocks from these rising costs and may even see an increase in demand as consumers are forced to consider cheaper flights.
Holiday Season Tells the Story for Tourism in 2023
All eyes are on tourism during the upcoming holiday season, which will provide a good indicator for travel themes in 2023. This holiday season will be extremely telling for the industry’s future profitability and asset return predictions.
Favourable Rating Levels and Sufficient Capacity for Most Insurance Risks
As an insurance broker, despite all the negatives affecting the insurance market, we predict that the relatively positive results of 2022 will lead to a 2023 with favourable rating levels in place and sufficient capacity for most insurance risks. However, significant instability remains due to the likely pricing impacts of a large claim.
New Technology: Key Focus for 2023
New technology remains a key focus for the future.
New technology remains a key focus for the future and, despite several delays, 2023 should see the first insurance involving software-defined satellite and new generation launch vehicles being bound by insurers.
Committed to Delivering Excellent Market Performance for Our Clients
RENOMIA has demonstrated excellent market performance for our clients throughout 2022 and we are committed to delivering these services along with the highest service standards through 2023.
Text by: Kulhová Hana /on the picture/
Edited by: Katerina Urbanová
Photo credit: Renomia
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- Source: https://aero-space.eu/2023/03/09/navigating-the-turbulent-skies-the-aerospace-industry-in-2022-and-beyond/
