ミリマンでは、米国国内民間航空機（U.S. General Aviation、USGA）に対する認可市場の保険会社の2021年末主要財務報告結果をまとめました。本レビューには、S&P Global Market Intelligenceから入手した法定年次報告書に記載された「航空機（全災害）（Aircraft (All Peril)）」事業ラインのデータのほか、その他出典元から得た情報を含みます。一方、航空会社および主要製造物の賠償責任など、米国大型航空リスクの市場の大半を構成するサープラスライン資格や州内認可を伴う保険会社は除いています。その結果、我々がレビューしたデータにより、USGA市場の実績について入手可能な公開情報による最良のスナップショットが提供できたと自負しています。業界の様々な測定基準について、以下の区分でまとめました。
- 引受保険料
- 引受査定結果
- 発生損失
注記として、本レポートにある「発生損失」には、損害と、弁護およびコスト抑制費用（defense and cost containment expenses、DCCE）の両方を含んでいます。また、2001年9月11日（9/11）のテロ攻撃事件による保険金削除により好ましい結果を報告した特定の保険会社における認可市場の発生損失について、我々が修正しました。
We are pleased to summarize key year-end 2021 financial results for domestic U.S. General Aviation (USGA) admitted market insurers. This review includes data from the “Aircraft (All Peril)” line of business within the statutory annual statement obtained from S&P Global Market Intelligence, along with other sourced information. We excluded insurers with surplus line eligibility or domestication, which comprise the majority of the market for U.S. large aviation risk, such as airline and major product liability. As a result, we believe the data we reviewed provides the best publicly available snapshot for the performance of the USGA market. We have compiled various metrics for the industry, categorized by:
- Written premium
- Underwriting results
- Incurred losses
As a note, “incurred losses” within this report includes both loss and defense and cost containment expenses (DCCE). Additionally, we modified the admitted market’s incurred losses for select insurance companies that reported favorable development due to the takedown of claims from the terrorist attack events on September 11, 2001 (9/11).
Written premium
The USGA admitted market reported $2.5 billion in written premium in 2021 (see Figure 1). This is a 16% increase from 2020 and represents a 55% cumulative surge from the $1.6 billion reported by insurers in 2018. This growth period represents the largest increase in written premium for the USGA market since the era immediately following 9/11. The rising tide lifted most boats, as 80% of admitted carriers who wrote at least $1 million in 2020 reported higher top-line revenue in 2021.
Figure 1: Direct written premium ($ billions)
Aviation insurers recently benefited from more significant increases in certain segments, like large commercial managed fleets, which were historically written on a 100% basis by one insurer and are now more commonly placed in the subscription market, where several insurers write a percentage of the policy. In certain other segments, like private business and pleasure (PB&P) and unmanned aircraft system (UAS), the premium and rate increases were lower. Notably, the 55% premium growth may actually understate the scale of increase, as some large USGA accounts that previously went to the subscription market may now be written in part by European insurers or via surplus lines capacity. Also, some major risk premium may be included in these amounts, and this may have increased between 2020 and 2021 due to the recovery in airline passenger movements.
The USGA market has also seen significant increases in ceded premium to the reinsurance market over the past few years. Between 2004 and 2016, the market consistently ceded about 40% of its direct written premiums to outside reinsurers (i.e., excluding any pooling or other transactions within an insurer’s own group). The past five years have witnessed this ratio steadily climb above 50%: consequently, the recent 55% growth in USGA admitted market direct written premium translates to a 44% growth rate in premium retained by the initial writing company (or insurance group). We suspect the growth in premiums ceded to outside reinsurers stems from a combination of unprofitability in recent years along with concerns over emerging claim severity as discussed below.
Underwriting results
Reviewing the USGA market underwriting results over the last few years helps to explain the recent firming of the market. From 2016 through 2020, the market lost approximately $700 million dollars on an underwriting basis (see Figure 2). In 2019 alone, the market lost nearly $300 million on $1.8 billion in premium. This period of unprofitability led to the recent rate firming, which in turn guided the USGA market to a small underwriting profit in 2021 of $92 million.
Figure 2: Underwriting results ($ millions)
From a longer-term perspective, the post-9/11 rate increases led to 14 consecutive years of underwriting profitability for the market (2002 through 2015). Thus, the nearly $700 million of losses between 2016 and 2020 were regarded by the insurance industry as being unsustainable. The $92 million profit in 2021 was therefore a welcome reversal, showing that profitability is once again trending in the right direction for long-term sustainability and solvency. It should be noted, however, that the market’s 4% profitability level in 2021 (measured as a percentage of earned premium) lags materially behind the USGA admitted market’s post-9/11 historical average.
As the capacity provided in some segments of USGA is regularly in the hundreds of millions of dollars on a single policy, a single event could materially impact the overall market’s underwriting results. This leads to the question of whether the below-average profits (or losses in recent years) were due to one insurer or one major event. Our review of 2021 results concluded that insurers reporting an underwriting loss represented about half (51%) of the USGA admitted market premium. This was notably better than in 2019, where 72% of the market reported a loss, but still represents more unprofitable insurers than at any point between 2002 and 2016.
Incurred losses
Incurred losses in 2021 were higher than all other recent years, continuing a trajectory that has witnessed losses more than doubling since 2014 (see Figure 3). Given that the COVID-19 pandemic caused a reduction in flight activity, it was expected that accidents in 2020-21, and resulting claims, would have been significantly lower than losses in prior years. Instead, the incurred losses in 2020 and 2021 provide further evidence that USGA claims costs continue to be a challenge for the industry. Rising incurred losses are caused by increases in exposure, claim counts, and/or claim severity, so which component is driving the losses?
Figure 3: Incurred losses ($ billions)
Exposure and claim counts
While overall flight activity was lower in 2020 due to the pandemic, general aviation traffic recovered more quickly than the commercial airlines. This explains why an expected material drop in USGA admitted market incurred losses for 2020 and 2021 did not occur, although the rising costs issue remains.
National Transportation Safety Board (NTSB) U.S. data1 shows that both fatalities and severe injuries have generally trended lower since 9/11 (see Figure 4). Assuming the 2020 nadir stemmed from reduced exposure, 2021’s slight uptick in fatalities and severe injuries is still consistent with the NTSB’s long-term downward trend trajectory.
Figure 4: NTSB number of aircraft fatalities and severe injuries
Focusing on 2014 and subsequent years (i.e., the period in which we noted incurred losses having more than doubled), NTSB data shows that U.S. fatality and severe injury counts are much flatter than the long-term trend. The use of NTSB head counts as a proxy for liability-based frequency is reasonable, and this data suggests that the frequency of liability-based events is not driving the recent increases to incurred losses.
Besides liability, USGA policies typically cover the cost of repair or replacement of aircraft due to adverse weather events, such as hurricanes, tornadoes, hail, wind, and heavy snowfall. These hull claims certainly affect the market’s profitability (e.g., the 2020 Nashville tornado, 2021 New Mexico hail event, and 2021 Kentucky tornadoes), but alone they do not explain the multiyear upward trend in incurred losses.
Severity on liability claims
Claim inflation continues to be a problem for the insurance industry and the aviation market is not immune from these trends. Given the relatively high policy limits provided in certain general aviation segments, the risk of social inflation (e.g., an increased tendency to punish those who cause injury to others) is of particular concern. U.S. juries have been awarding significantly higher sums in recent years. The median value of a single-fatality award by U.S. juries2 has gone from $2 million to $5 million over the last few years (see Figure 5), and of particular note is that the timing of acceleration in the chart mirrors the period in which USGA incurred losses saw rapid growth.
Figure 5: Median value of awards in the United States of single fatality ($ millions)
Insurers are also experiencing an increase in the frequency and severity of runaway verdicts. The aviation market has not been immune to this trend either; with multiple nine-figure verdicts in recent years including:
- $116 million awarded to families of three crew members who perished in a cargo flight in Afghanistan3
- $148 million awarded to a person paralyzed at O’Hare Airport4
- $352 million awarded to a United Airlines employee paralyzed at George Bush International Airport5
These judgments have had a spiraling effect, with past verdicts leading to routinely higher demands by plaintiffs, and increased costs of settlements. Some of the claims that are impacted are those that have occurred in the last few years. These claims had previously been reserved using historical loss values but may be under-reserved based on recent claim trends. Changes in reserves on these claims are likely also having an impact on the 2021 profitability, as any adverse reserve development on claims in older accident years will suppress profitability levels in the current year.
Severity on hull claims
Newer-generation aircraft are made with composite materials that are much more expensive to repair than aircraft of previous generations. They require proprietary bonding techniques and specialized equipment that significantly reduce the number of entities with the expertise to make the repairs. Recent inflation, labor shortages, and supply chain issues have impacted the aviation industry as well. Figure 6 displays the monthly increase in aircraft costs relative to 12 months prior.6
Figure 6: Producer price index for aircraft and aircraft equipment (monthly)
Looking ahead
The USGA insurance market has been very competitive for a number of years, with USGA policyholders benefiting from reduced premiums and competitive rates up until around 2019, at which point rates in the market began to harden. Even with the substantial increase in premium achieved over the last few years, the 2021 calendar year reported only a small underwriting gain. A number of factors such as challenging claim severity trends and the broader liability environment continue to be significant challenges for insurers and many of these factors are likely to extend into the near future. Taken together, our analysis indicates that the USGA insurance market is heading in the right direction but needs to continue to increase premiums to return to historical levels of profitability.
1 NTSB. Accident Data. Retrieved October 21, 2022, from https://www.ntsb.gov/safety/data/Pages/Data_Stats.aspx.
2 Source: Advisen, a Zywave company.
3 Nolan Law Group (June 30, 2017). Jury Awards $115.75 Million to Families of Flight Crew Killed in Afghanistan Cargo Plane Crash. Retrieved October 21, 2022, from https://www.prnewswire.com/news-releases/jury-awards-11575-million-to-families-of-flight-crew-killed-in-afghanistan-cargo-plane-crash-300482616.html.
4 Wojciechowski, C. & Orlando, T. (August 24, 2017). Jury Awards $148M to Dancer Paralyzed in O'Hare Shelter Collapse. NBC 5 Chicago. Retrieved October 21, 2022, from https://www.nbcchicago.com/news/local/verdict-reached-in-case-of-dancer-paralyzed-by-ohare-shelter-collapse/22562/.
5 Langford, C. (October 26, 2021). Texas jury awards $352 million to family of paralyzed airport worker. Courthouse News Service. Retrieved October 21, 2022, from https://www.courthousenews.com/Texas-jury-awards-352-million-to-family-of-paralyzed-airport-worker/.
6 Source: Federal Reserve Bank of St. Louis; see https://fred.stlouisfed.org.