Lessons from the past: it’s not a hard market – it’s a rising one

Liberty Mutual Re’s Hans Towler and Dan Carroll look back at the company’s journey in aviation reinsurance and what can be learned from the past…

Aviation generic

Aviation reinsurance was one of the founding specialty lines of business at the start of what is now Liberty Mutual Reinsurance (LM Re). The aviation reinsurance team joined in 2001, writing purely excess of loss (XoL). Twenty years later, LM Re’s aviation reinsurance division continues to strengthen its position as one of the leaders in the field.

Establishing the business

We started strongly in 2001. We could not have anticipated the 9/11 terrorist attacks that year, which would impact the whole aviation market and redefine the future of the segment. We recognised that we needed to focus on existing strong long-term relationships to build a leadership position, backed by the commitment of senior management throughout the Liberty Group. The team was at the forefront of implementing essential changes to aviation (re)insurance and as a result, our income quadrupled in a year with our key relationships enhanced.

Our mutual status enabled us to demonstrate our long-term commitment to our clients and build strong relationships through challenging times. This philosophy and approach remains at the heart of our strategy today.

Consistency and transparency

Income has ebbed and flowed with the market in the intervening years. It peaked in 2006 then fell to its lowest level by 2017. This was due to concerns over market pricing and coverage, resulting in LM Re taking several steps to manage the cycle. The key success factor was our consistent and transparent approach to pricing.

“Placements in (re)insurance are not struggling for completion and so we would characterise the situation as a rising market rather than a truly hard one”


As the market stabilised in 2017/18, we identified the need to diversify and grow the book to reduce potential volatility and broaden our offering to key clients. We perceived that the direct market was turning, so that quota share (QS) solutions were potentially more viable for us. We also found that competitors were using a wider product offering to leverage XoL shares at the expense of pure XoL underwriters.

We therefore decided to start writing QS in 2018, initially with the account split 85/15 between XoL/QS. The split is now nearer 75/25. We have also strengthened and broadened relationships with certain key LM Re clients who themselves have demonstrated long-term commitment to QS purchasing and to LM Re.

Recent events

The last five years have seen some of the most dramatic events in aviation history. The Max 8 losses in 2018/19 once again significantly impacted the whole market and LM Re’s approach was consistent with past responses – to show leadership from the team and commitment from senior management to be a reliable partner to the market. The combination of these factors and the development of the QS book means our forecast income for 2022 is back at its historic peak and we are keen to expand our business further.

A hard market or a rising one?

Hard markets are defined by capacity, not price. By this definition, the last truly hard market was in 1990/91, when capacity was in short supply across most specialty lines and where prices rapidly doubled and even trebled.

The aviation market is currently going through a phase of increasing rates and potentially also structural reforms to the underlying insurance product. However, placements in (re)insurance are not struggling for completion and so we would characterise the situation as a rising market rather than a truly hard one.

Significant losses from current world events could still arise and major capacity withdrawals could follow, in which case a truly hard market could develop. In the meantime, factors such as the potential for systemic losses, current events and market-wide concerns around social inflation mean that we must continue to focus on price adequacy and sensibly structured products to meet our clients’ core needs.

In this way, we can help to ensure that aviation (re)insurance is a sustainable product for the long term, a big challenge, but one which LM Re has the security, capability and drive to meet.

Hans Towler is head of aviation reinsurance and Dan Carroll is senior underwriter aviation reinsurance at Liberty Mutual Reinsurance