We are pleased to summarize key year-end 2023 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 reserves from the terrorist attack events on September 11, 2001 (9/11).
USGA written premium for 2023
The USGA admitted market reported $2.9 billion in direct written premium in 2023 (see Figure 1). This is a 7% increase from 2022 and contributes to an 84% 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 has yet again lifted most boats, as nearly 70% of admitted carriers who wrote at least $1 million in 2022 reported higher top-line revenue in 2023.
Figure 1: Direct written premium ($ billions)
The pace of premium growth continues to decline, however, with this year's 7% rise coming on the heels of last year’s 11% growth and three consecutive years around 15% before that. Looking ahead, we anticipate that this slowdown will continue into 2024. A review of second-quarter 2024 statutory financial data suggests that USGA premium volume could grow approximately 5% over the full year.
Federal Aviation Administration (FAA) data1 shows that, while overall flight activity was lower in 2020 due to the pandemic, general aviation traffic recovered more quickly than the commercial airlines. Going forward, we expect to see moderate growth rates in USGA active aircraft, meaning that premium changes may stem from this steadily increasing exposure and from potential increases in policy limits rather than from general rate increases.
The USGA market has always represented a small slice (less than 0.5%) of the overall property and casualty (P&C) insurance industry, which is dominated by personal lines (e.g., home and auto) and general liability business. Insurers with at least $1 million in annual aircraft premiums derive, on average, about 5% of their business from the USGA market, meaning that carriers in this space are principally multiline writers. Aircraft policies can protect against losses in the hundreds of millions of dollars, so USGA insurers tend to cede a significant portion of business (approximately 50% of premium) to the reinsurance market. These risk transfer mechanisms lessen the concentration of aircraft perils on any given insurer’s book of business, which, all else equal, can serve to reduce overall solvency risk.
USGA underwriting results
Poor underwriting results in the late 2010s were the catalyst for the USGA market’s recent firming. From 2016 through 2020, the market lost approximately $700 million on an underwriting basis (i.e., excluding investment income), as displayed on Figure 2. In 2019 alone, the market lost nearly $300 million on $1.8 billion in premium. This period of unprofitability, followed by the aforementioned rate increases, guided the USGA market to small underwriting profits in 2021 and 2022 ($92 million and $100 million, respectively). The 2023 underwriting income of $343 million represents a return to the profit level experienced by the industry in the years leading up to 2016.
Figure 2: Underwriting results ($ 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, after nearly $700 million of losses between 2016 and 2020, the underwriting profits in 2021 through 2023 have demonstrated that profitability may once again be trending in the right direction for long-term sustainability and solvency. It should be noted, however, that the market’s 4% profitability level in both 2021 and 2022 (measured as a percentage of earned premium) lagged materially behind the USGA admitted market’s post-9/11 historical average. After adjusting for premium growth, the 2023 profit level is in line with results from years prior to the period of underwriting losses.
Underwriting expenses in recent years are higher across the board. Certain of these expenses—agent commissions, brokerage fees, and taxes—are tied to premium volume and help to explain the recent rise in costs. Other acquisition and general expense ratios were somewhat lower, however, which effectively reduced the underwriting expense ratio (as a percentage premium) during these past three years to levels that are three percentage points below the ratio experienced during the unprofitable years (see Figure 3).
Figure 3: Underwriting expense ratio
USGA incurred losses in 2023
Incurred losses were slightly lower in 2023 than in 2022, but remained at a level higher than all other recent years, continuing a general trajectory that has witnessed losses more than doubling since 2014 (see Figure 4). Over this period, the steady increase in USGA losses along with premiums that essentially held steady through 2018 led to loss ratios that were well above pricing targets. Figure 4 also shows improving loss ratios in recent years compared to the high-water mark of 2019. Although the 2023 ratio is on par with the post-9/11 years through 2015, claim costs continue to be a challenge for the USGA industry.
Figure 4: Incurred losses ($ billions)
Rising losses are caused by increases in claim frequency and/or severity, so which component is driving the losses?
Claim frequency
National Transportation Safety Board (NTSB) U.S. data2 shows that both fatalities and severe injuries have generally trended lower since 9/11 (see Figure 5). Assuming that the lower amount in 2020 stemmed from reduced exposure on account of the pandemic, the slight uptick in fatalities and severe injuries in 2021 and 2022 is still materially consistent with the NTSB data’s long-term downward trend trajectory. Combined fatalities and severe injuries reported in 2023 amounted to only 532, representing the lowest amounts in the entire 42-year dataset. 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.
Figure 5: NTSB number of aircraft fatalities and severe injuries
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. Weather-related losses are on the rise, and may continue to increase in frequency, but alone they do not explain the magnitude of the multiyear upward trend in incurred losses.
Severity on liability claims
Claim inflation continues to be a problem for the P&C insurance industry and the aviation market is not immune to 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. After a reduction due to the pandemic in 2020, both the number and average size of jury verdicts regarding motor vehicle events have continued to climb (see Figure 6). Of particular note is that the timing of acceleration in the chart mirrors the period in which USGA incurred losses saw rapid growth.
Figure 6: U.S. motor vehicle verdicts in excess of $10 million
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
- $100 million settlement after a Grand Canyon helicopter crash6
These judgments and settlements 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 2024 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 7 displays the monthly increase in aircraft costs relative to 12 months prior.7
Figure 7: Producer Price Index for aircraft and aircraft equipment (monthly)
An increase in severe convective storms that has impacted the U.S. property insurance market has also impacted general aviation. A tornado ripped through Eppley Airfield in Omaha, Nebraska, in April 2024. The tornado destroyed four hangars containing 32 general aviation aircraft.8 This storm highlighted the concentration risk of insuring aircraft.
USGA market: Looking ahead
The USGA insurance market had 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. We are witnessing some indications that USGA insurers continue to progress through the market cycle—years of premium hikes beginning to stabilize, loss ratio relief, and a return to long-term profitability levels. However, the rising frequency and severity of weather-related events and the increasing uncertainty of the broader liability environment—both of which can disproportionately impact reinsurers’ bottom lines and future capacity—continue to be significant challenges for USGA insurers and may not be fully contemplated from a pricing perspective.
While underwriting expense ratios have flattened in recent years, premium growth has masked the higher general expenses and other acquisition costs, which for USGA carriers have risen about 25% since the pandemic. We tend to consider these “people costs,” and they have noticeably increased post-pandemic across the broader P&C industry.
All considered, our analysis indicates that the USGA insurance market has taken the necessary steps in recent years to return to profitability. Although premium growth may now be flattening, significant risks in both claim costs and reinsurance capacity have increased the uncertainty of this market and may ultimately lead to another period of rate increases.
Carl Ashenbrenner, FCAS, MAAA is a principal and consulting actuary with Milliman.
Andy Kline is an actuarial analyst with Milliman.
1 FAA data retrieved May 22, 2024, from https://www.faa.gov/data_research/aviation_data_statistics/general_aviation/ and from https://www.faa.gov/air_traffic/by_the_numbers/media/Air_Traffic_by_the_Numbers_2023.pdf.
2 NTSB accident data retrieved May 22, 2024, from https://data.ntsb.gov/avdata/.
3 Nolan Law Group (June 30, 2017). Jury Awards $115.75 Million to Families of Flight Crew Killed in Afghanistan Cargo Plane Crash. Retrieved September 17, 2024, 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 September 17, 2024, 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 September 17, 2024, from https://www.courthousenews.com/Texas-jury-awards-352-million-to-family-of-paralyzed-airport-worker/.
6 Gordon, A. (January 19, 2024) Parents of Man Who Died After Grand Canyon Helicopter Crash to Receive $100m Settlement. Time. Retrieved September 17, 2024, from https://time.com/6553836/grand-canyon-helicopter-crash-victim-parents-settlement/.
7 Source: Federal Reserve Bank of St. Louis; see https://fred.stlouisfed.org.
8 Epstein, C. (April 29, 2024). Nebraska Airport Raked by Tornado. AIN Media Group. Retrieved September 17, 2024 from https://www.ainonline.com/aviation-news/general-aviation/2024-04-29/nebraska-airport-raked-tornado.