Some aviation all-risks reinsurers have been coaxed back into the aviation hull war market, demanding much greater data and awareness of exposures, but a capacity shortfall remains, despite high prices on offer.

Two years on from Russia’s seizure of western airliners after sanctions due to its invasion of Ukraine, the aviation hull war market has been characterised by a dramatic shrinkage in available reinsurance capacity and exponential rises in reinsurance pricing.

Bruce Carman, CUO, HIVE Underwriters

The exit of reinsurance capacity has also driven up the need for aviation war underwriters in the market to collect more data and demonstrate greater exposure management for what can be a highly volatile market.

Bruce Carman (pictured) is founder and chief underwriting officer of Hive Underwriters, a managing general agent (MGA) set up in 2017 initially as a Lloyd’s coverholder for aviation hull war business, although it has expanded its business across other aviation lines since then.

“The cost of [aviation hull war] reinsurance has definitely risen exponentially over the past couple of years,” said Carman, speaking on a recent episode of The Political Risk Podcast.

Reinsurers did not sufficiently understand their exposures, not just in war markets but other aviation business, he suggested, citing several grounding incidents of airliners that created “sizeable aviation events”.

“Gone are the days when war risk underwriters could strike up and start writing the class, and not really know where the values were sitting on the ground. The people reinsuring the war market are now interested in those numbers as well, and starting to filter out the good from the bad,” he said.

While those reinsurers still in the aviation war space probably have a much firmer grasp on the risk, most preferred to simply exit, he noted.

“The greatest change that I’ve seen undoubtedly in the past couple of years since the invasion of Ukraine has been the withdrawal and retreat and reduction in capacity from the reinsurance market. We’ve seen a vast reduction in capacity that the reinsurers are willing to bring to the table,” said Carman.

Much of the uncertainty surrounds the Russian invasion of Ukraine, when many airliners were seized on the ground by Russian authorities, creating a situation in which the planes have not been lost, but cannot be reclaimed, leading to disputes between aircraft lessors and insurers.

“There’s uncertainty regarding Russia and Ukraine, and that uncertainty has definitely squeezed the reinsurance to squeeze the direct market, and has limited capacity,” said Carman.

“That reduction in capacity, together with the events of the past five years, has seen hull war rates trend upward significantly. The trend is a factor of the reduced capacity and appetites to apply oneself to the class. There are fewer and fewer people willing to take a bet on it, certainly without the backing of reinsurers,” he said.

There have been other war risk loss events in the market within the past year. Some underwriters got a rude awakening on Saturday 15 April 2023 when fighting broke out between government and paramilitary forces in Sudan. Khartoum’s airport quickly became a battleground, with several airliners destroyed in the fighting.

“The Khartoum invasion and civil war that ensued was not anticipated or forecast and one of those events that just came out of the blue. No one locally, I believe, was alert or aware to the potential for it. The normal chatter that we would expect on the waves to come through our sources wasn’t there,” Carman said.

A significant number of airliners were damaged or destroyed on the ground, he suggested.

“There was a Saudi Air aircraft sadly caught up in the crossfire and destroyed as well as a number of SkyHop and Badra Airlines aircraft, which were based there. The war market as a result of that is looking at something in the region of a $250-$300m loss. Assets have been destroyed – fact,” he said.

Despite recent loss events and ongoing fears around disputes, there have been some new market entrants to aviation hull war, Carman explained, coming from all-risks aviation business, due to a lack of activity across the hull and liability sides of the business.

“We’ve seen certainly some of the all-risks [underwriters] move to, or move back to, the war risk sector,” Carman said.

“The broker community have approached to those all-risks markets to say ‘if you want your share on the all-risks hull and liabilities, you probably need to give us something on the war risks, because we’re struggling a little bit on capacity on war risks’,” he added.

Hive added Allianz to its capacity providers in the final quarter of last year, Carman noted, emphasising the demands for quality that such backers place on MGAs.

“You really need to have the analytics, you really need to have the data, you need to have an accumulation system, and someone that’s on the ball maybe on a Saturday morning,” Carman added.