War and political risk continue to loom over specialty lines at 1.1: Aon

The aviation reinsurance market will be closely monitoring the outcomes of legal disputes related to aircraft leasing claims throughout the remainder of the year, with any crystallisation of losses likely to have “very meaningful” impacts on placements at 1.1, according to Aon.

In a new report ahead of the treaty renewal season, Aon noted that aviation renewals during 2024 have been more predictable than the prior two years, where reserve deterioration in prior losses saw a period of market dislocation, with significant rate increases, coverage restrictions, and capacity remediation.

Stabilisation of the retro market towards the end of 2023 tempered further significant rate increases at the previous 1 January renewals.

Aon noted that this position was improved following the retraction of a core market’s positioning around exclusionary language related to Russia, Ukraine, and Belarus (RUB).

“The rating environment has thus far only further moderated throughout 2024 with insurers’ purchasing requirements stabilized and supply of capacity continuing to increase,” said the report.

“In addition, despite a lack of anticipated rating increases within the airline all-risks market, quota share capacity has also stabilized with less pressure on commission reductions than we tracked in 2023.”

Looking into 2025, Aon said the rating environment is likely to be stable at 1.1 in the absence of any sizeable new claims, or further impact of potential losses related to Russia.

“Careful attention is being paid by the market in relation to ongoing court hearings and legal disputes surrounding aviation exposures relating to RUB which may indicate how/if any potential losses may crystalize within the market,” said Aon.

“Given the values at stake, this could result in very meaningful potential impacts to 2025 placements.”

Elsewhere, while marine and energy was still viewed as an attractive diversifying specialty line of business – leading to an oversupply of reinsurance capacity to the class – coverage and capacity was more challenging to secure in placements where war, political violence, and terror was included.

“The market continues to watch settlements for commercial aircraft confiscated during the Russia-Ukraine conflict. Should these losses fall against 2021 aviation war placements, the potential for significant loss exists,” the report concluded.