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Aviation market starts to turn after long period of falling rates

Aviation market starts to turn after long period of falling rates

The aviation insurance market has been soft but is beginning to show signs of hardening, though there continues to be significant capacity.

“It’s a market in transition,” said Jeff Bruno, president and chief underwriting officer of aviation insurer Global Aerospace Inc. in Parsippany, New Jersey.

“The aviation market is still trying to find its way after years of softening,” he said. There are increases in all lines of the business, “which is absolutely justified and likely to be just the start of the corrective action that is required.” Rate increases are class- and experience-dependent, he said.

“I would characterize the market as a firming market,” said Garrett Hanrahan, Dallas-based U.S. aviation practice leader for Marsh L.L.C. “Underwriters are looking to move rates up. We’ve been in a significant softening market cycle for the better part of 13 years.” However, “the reality is, there’s still lot of capacity,” he said.

“We have an abundance of capacity in the aviation market,” said Terry Rolfe, New York-based global head of aviation for brokerage Integro Group Holdings L.L.P. “Until we see significant consolidation of that capacity, I don’t think we’re going to see a true hardening of the market.” Much of the capital is private equity that has moved into the insurance space, she added.

Meanwhile, “Severity has gone up significantly,” said Eric Donofrio, regional chief underwriting officer for North American aviation for XL Group Ltd., which does business as XL Catlin.

“The judgments are higher even on small incidents,” said Bradley A. Meinhardt, Las Vegas-based area president and managing director of Arthur J. Gallagher & Co.’s aviation practice.

Over the past few years, it has been getting harder to reach settlements “within generally accepted guidelines,” he said.

There has been some consolidation in the business. In August, Starr Insurance Holdings Inc. agreed to acquire the renewal rights of Aspen Insurance Holding Ltd.’s aviation business after Aspen announced it was exiting the market.

Hiscox Ltd. also announced this year it was withdrawing from aviation hull and liability underwriting, while W.R. Berkley Corp. said “after careful consideration and review” it has decided to exit the business as well.

But their exits will have little if any impact because of the amount of capacity in the business, Mr. Hanrahan said.




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