History would tell us that the hard market cycle never lasts as long as the soft market cycle and once again, this has proven to be the case for the global GA market as we close out 2021. Over recent months we have continued to witness a swing in momentum within the GA market with the previous trend of high-level rate increases now a thing of past. As we enter in to 2022, the GA market looks poised to continue softening and become a more favourable buying environment for GA clients.
Rates and Premium
The start of 2021 essentially carried on from where 2020 left off and the GA market was a challenging environment with steady rate increases and a continued level of discipline within the underwriting community. Full capacity wasn’t always utilised on any given risk and as a result ‘working capacity’ at the right pricing levels still created Brokers and clients with a challenging renewal. In general, insurers had maintained the momentum they gained in 2020 and were continuing to push for an overall ‘correction’ of rating levels.
Fast forward to the end of the first quarter and market conditions were showing some signs of levelling out. Each individual risk was still being reviewed and rated on its own merits but those with clean loss records and growth were benefiting from more favourable terms. In addition to this, competition for lead position and market share had returned and as a result, the position started to look more favourable for buyers again. As we continued to navigate through 2021, the market softened further and rate momentum tapered off as competition increased and underwriter resolve waned.
In particular, we are seeing an increased level of competition from following markets as market share becomes a priority. This in turn has enabled the brokers to leverage out any insurers who achieved higher premiums than the leader in previous years and replace their capacity with alternative markets at more competitive levels of premium, including those insurers already on the placement that are looking to increase their share. As we enter in to 2022, ‘as before’ rates have become a starting point for most renewal negotiations, with relatively clean/profitable business able to achieve and in some cases even improve on this position.
Whilst some readers will feel differently (mainly from our underwriting community!), absent of major losses, our outlook for 2022 will see the return of rate reductions for those risks that are profitable and have a good reputation within the market. Loss-active/un-profitable accounts and or those risks requiring large limit capacity remain a slightly more challenging market however, things have improved significantly from where we were 12 months ago.
In general, GA market activity has stayed fairly stable throughout the pandemic, meaning the overall premium base has not been as heavily impacted compared to other sectors. The insurer remediation efforts we have witnessed over the past few renewal cycles appear to have moved technical rating levels close to target adequacy and these factors coupled with reduced loss activity, has allowed insurers to deliver improved underwriting performance. Subsequently, the focus of insurers now seems to have shifted towards retention and growth, a positive factor for GA insurance buyers. It yet remains to be seen however, if the newly built global premium base will support an acceptable level of profitability for underwriters should loss activity increase to pre-pandemic levels, however we do believe that the market is now trending in the right direction for buyers again and this allows us to be very optimistic.
Capacity
Pre 2021, the previous few years had seen considerable challenges for GA renewals in respect of capacity. A number of prominent insurers exited the class, both via withdrawals and through merger activity, overall appetite reduced, line sizes contracted and there were fewer lead options available. The result brought considerable pricing pressure on GA risks, particularly those that required the participation of two or more insurers.
However, as we entered 2021, several new markets and expanded offerings appeared, adding options, and it wasn’t long before we started to see competition increase and insurers looking to deploy larger shares at more competitive terms. This trend continued to develop throughout 2021, and by the fourth quarter all but the most challenged risks were in the position where there was sufficient, if not excess capacity, available at renewal. This was a key factor in the overall softening of rates seen in this sector.
Looking ahead, we expect capacity to remain stable, several carriers recently announced increased Hull and Liability capacity for 2022 and we could see additional new entrants and options become available. That said, as we have mentioned previously loss experience will remain the main driving factor to the capacity available. Although some risks will continue to face capacity challenges in 2022, for those clients with the ‘right’ risk profile and levels of account profitability there is increased competition and options which is welcome news after a prolonged period of hardening.
Losses
While due to the diverse nature of GA there is limited data around exposures and claims in this sector, the general market consensus is that the GA sector has experienced another good year in terms of overall losses. Most would agree that pandemic has undoubtedly led to some reduction in claims, but just how much is impossible to quantify. According to preliminary data released by the AOPA Air Safety Institute the number of GA accidents fell for the third year in a row with the lowest number of fatal losses recorded in the past decade. Loss of control during the landing phase and VFR flight into instrument conditions continue to be the leading causes of fatal losses, with the greatest number of accidents reported for private single-engine aircraft.
Unlike airline equipment, GA aircraft are typically lower value. Most GA losses tend to involve just one or two insurers, as opposed to multiple markets, meaning the likelihood of a GA loss becoming a market event is considerably low. That said, severe weather events, such as tornados, hail or flood, do represent a risk in this respect given their aggregated damage potential. Although most GA clients are often able to evacuate/secure equipment quickly and at short notice, there have been several weather events in recent years, which have led to some significant market claims.
Future outlook
- Signs of a more positive environment for GA insurance buyers in 2022
- Absent of high loss levels, or a major event, we anticipate further moderation in technical rates
- Capacity levels and competition expected to increase
- Individual loss records will remain a major driving factor in pricing
- The individual circumstances and policy specifics of each operator will influence the results
- Variation in pricing levels between risks in different geographies and operational sub-sets will also remain.
