Jason: Welcome back to The Truth About the Market. I'm glad you're here. This is the show where we cut through the noise and focus on what's actually happening in aviation, not the hype, not the headlines, just the truth. And I'm your host, Jason Zilberbrand, and I'm president of VREF I've appraised nearly every type of aircraft out there. My clients range from the FAA to private owners, and I've owned, operated, bought, and sold my own plane. So when I talk about this stuff, it's not theory, it's experience. And it should also be noted that this podcast has no sponsors. There's no advertisers, there's no commercial interests. Accordingly, there's no incentive to soften or dilute the facts. What you hear today is unfiltered because aviation demands the truth and the market punishes misinformation every time. And today, we're talking about a big one aircraft insurance, how it's actually priced, how it behaves in the market, and what's changing as we move through 2026. Because insurance is embedded in every aircraft transaction. Owners are forced to carry it. Lenders require it, and it directly impacts both operating costs and liquidity issues. And despite that, most participants treat it as a fixed expense rather than a variable one driven by market conditions. And I think that's a mistake. Because insurance is not simply protection, it's a capital-driven pricing system. You have risk is one input, but outcomes Are determined by loss experience, cost of capital, and the structure of reinsurance market behind it. When those inputs change, the pricing, the terms, and even the availability can change with them. And that shift is already in motion, folks, because the aviation insurance market is coming off a period of elevated losses. Claim severity has increased due to high repair costs, longer downtime, more expensive parts and labor. Liability exposure has expanded. And the recent events have introduced scenarios such as asset seizure and loss of access were not fully accounted for in prior underwriting models. Those developments affect how insurers allocate capital. When losses increase and uncertainty expands, underwriting tightens. Pricing adjusts to reflect higher expected costs. Capacity becomes more selective. This doesn't happen uniformly or even instantly, but it does happen consistently across the cycle. And what you're seeing today is a result of that process. Pricing is being recalibrated, terms are becoming more structured, and the underwriting decisions are increasingly tied to asset-specific characteristics rather than broad categories. And from an evaluation perspective, this matters a lot. Insurance outcomes now reflect how the market evaluates the aircraft itself. Condition, maintenance quality, operating profile, and overall risk exposure. This is no longer a passive expense. It's a direct indicator of how the market prices the asset. See, insurance is not about risk. It's a common misconception. In aviation insurance, that pricing is driven primarily by risk, but risk is evaluated, but it is not the constraint. You know what is? Capital. Insurance operates as capital allocation businesses. Every policy represents a commitment of capital against potential loss. And that capital must generate. Generate an adequate return. Pricing is therefore determined by loss experience, reserve development, and the cost of transferring exposure into the reinsurance market. And we'll talk about that. Because when those things, those variables change, pricing follows. And that shift, as I said, is underway because the industry is coming off a period of elevated losses. The claim severity is increased due to the higher repair costs and the longer downtime and parts availability. And the assets are becoming inaccessible rather than physically damaged. And that forces insurers to reassess assumptions around recoverability. These are not isolated issues. They affect how capital is being deployed because the insurers respond by tightening underwriting standards, they reduce the tolerance for uncertainty, and aligning pricing more closely with expected losses. Reinsurers, those who ultimately absorb a significant portion of the large exposures, They have to impose their own constraints through higher pricing and stricter terms and reduce flexibility. So that pressure flows directly into the primary market. And the result is a shift in how a risk is priced, not as a reaction to a single event, but as a cumulative effective loss experience and capital cost and reduced margin for error. Even when the market appears stable on the surface, those forces are already embedded in underwriting decisions. Pricing is not moving randomly. It is adjusting to reflect the cost of capital. So let's talk about what the data's actually saying. Because at a glance, the aviation insurance market does not appear distressed. Because, as I said, capacity remains available. I think there's 13 or 14 underwriters now, multiple carriers are competing for business. And in certain segments, particularly well-performing risk, pricing appears stable on the surface. That suggests continuity. But like everything, That view is incomplete. The underlying data tells a completely different story because the industry is coming off heavy losses. Operational, legal, geopolitical. It reshaped the loss environment. Insurance markets do not respond to sentiment or to headlines. They respond to the claims. And the claims drive capital behavior. And the losses, they don't get reset at the end of the year. They have to carry them forward into the reserves. And that then impacts the capital allocation decisions. And whether or not they can even have those reinsurance negotiations. Those adjustments, they don't appear immediately in pricing. It's a big lag, and they emerge with a lag. And that lag defines the current market because what you're seeing in early 26 is not random movement. It's the market absorbing prior losses and recalibrating expectations. See, the result is a market that appears stable on the surface, but it is tightening. This doesn't show up as broad immediate rate increases, even though everybody that we query through our survey says that it's one of the biggest line item increases every year, insurance. It goes up and up and up. And it appears, honestly, in in a lot of subtle ways. Sometimes it's reduced flexibility. Sometimes they scrutinize the equipment you're flying. Sometimes they probate you and they don't allow you to fly in certain environments or certain times. And there is a widening gap between high quality and marginal risks. Market hasn't broken. It's repricing with greater precision. And that is where most people misread it. You know, for an extended period, the aviation insurance market operated with excess capacity because capital was so abundant. And that created a highly competitive environment. I don't know if a lot of you remember, but for a while there, for a better part of a decade, rates were very cheap. Insurance was not really a big deal. Carriers pursued market share and Because of that, the price softened. Premiums were constantly being pushed downward. But that dynamic changed. The shift didn't happen abruptly. It's not expressed through broad immediate rate increases, but it does happen every year. In any event, they're no longer isolated from broader market pressures. And the reason is structural. The economics no longer support prior pricing. The cost of maintaining and repairing aircraft has gone up incredibly since COVID. And when you take into account the parts constraints that are driving replacement costs higher, right, all these claims, all of that stuff matters because the more expensive labor is and the harder it is to source, the it takes to fix an aircraft. And the longer it takes to fix an aircraft means that the insurance companies are paying more when these claims come out. And at the same time, liability exposure is expanded in both scale and complexity. That's contributing to the larger loss. So as those costs keep going up, the margin between the premium and the loss, it compresses. And that forces a reset in how pricing is approached. The response is structured. Carriers are adjusting underwriting assumptions, but they refine their portfolio mix and pricing closer to expected loss and reinsures they force it because they tighten their terms and they increase the cost to transfer risk to them. And that flows directly into the primary market and the premiums you pay. So this isn't volatility, it's just the direction. The market is moving away from an environment defined by excess capacity toward a one that's defined by capital constraint. Pricing is aligning more closely with actual exposure, and underwriting is becoming more segmented. That transition, measured consistent, and driven by cost, that's the turning point. And the most influential force in aviation insurance is also the least visible. Because primary insurers do not retain all the exposure they underwrite. In fact, a significant portion is transferred to reinsurers who provide the capital that supports the entire system. It's an upstream layer that determines how much risk can be written off and on what terms and at what price. And right now that layer is under tremendous pressure. Because reinsurers have absorbed a series of material losses over the past several years, including complex Claims tied to geopolitical events. Remember the big Russia issue and the large scale exposures that challenge prior assumptions about risk. You had COVID, you had the Russian Ukraine war. Now you have Iran. Take that into ⁓ combination with Boeing and all the issues we saw with the 737 Max, and then all the accidents we've been having. Bigger claims, more claims. It's forcing a response. And that response is capitals being deployed more cautiously. See, the focus is not on withdrawing, but on ensuring that pricing and structure reflect what's actually going on. And so if the shift is showing them that things are getting more expensive, well, then there's going to be a higher cost of capital. And so for the primary insurers, this really does have direct consequences because the cost and the availability of reinsurance influence portfolio construction, whether or not they're going to even take on your deal, whether or not they'll even offer you a renewal. See, that's what's impacting underwriting. So as reinsurance becomes more constrained, the carriers respond by not renewing or changing the terms or limiting what the losses can be or making it way more expensive for you to be able to afford it, especially if there's a big loss or diminution of value. And this is why the market can appear competitive, but it's way more restrictive. The constraint is not always visible at the point of tr of the transaction. As a matter of fact, it exists upstream. Because the shaping decisions before they reach the quoting stage, it happens all the time. Changes tend to be incremental. But trust me, folks, this is very consistent behavior. Higher capital costs drive that pricing. And then when they scrutinize everything at the reinsurance level, it does translate into more disciplined underwriting at a primary level. So over time, what happens is the influence sets the direction of the market. The driver is not what you think, it's not what you see, it's what's funding the risk. Because the most influential force in aviation insurance is also the least visible. Primary insurers, they do not retain all of the exposure the underwrite. See, this is what people need to understand. A significant portion is transferred to what we call a reinsurance company or a reinsurer, as I've been saying in this podcast. And what those companies do is they provide the bulk of the capital that supports the entire insurance system. And it's an upstream layer. And it determines how much risk can be written on and at what terms and at what price. And so that layer, as I said, is under pressure because the reinsurers, they're the ones that are absorbing all these losses. They're the ones that are exposed to the actual asset risk. And in response, well, they're just tightening and they're not doing as much. But for the primary ex insurers, the direct consequences are pretty obvious because the cost and availability of reinsurance influences both what a underwriter or a primary insurer is able to actually underwrite on. So I get a lot of calls, especially from new aircraft buyers, and they tell me that they're having a real hard time getting insurance. Or maybe it's a complex aircraft types of situation and the pilot is having a really hard time finding an underwriter. This is part of the dilemma. This is why. See, the market can appear competitive, but it's becoming far more restrictive. So trust me, It's not what you think. It's not what you see, but it is what's funding it. This episode is powered by VREF the standard in aircraft valuations. If you're buying, selling, financing, or you're just trying to understand what your aircraft is really worth, VREF it. VREF online gives you the data that actually drives decisions, not opinions. It's not listings. It's not guesswork. Go to VREF.com and VREF it before you make the call. So let's talk about why the market's splitting. Because it's the most consequential change in the current environment, and it's not pricing, it's differentiation. The market's no longer behaving uniformly, right? Outcomes are increasingly driven by the specific characteristics of each aircraft, each operator, whether or not they need certain coverage. And two aircraft that appear comparable at a very high level because of the same model or maybe the age. Maybe they do the same mission in the same cabin class, they're gonna produce materially different underwriting results and risks because the divergence reflects a shift in how risk is evaluated, because underwriting's moving away from generalized benchmarks, and they're looking at asset-specific analysts. They want to know what the maintenance is, they want to know what the record's integrity is, utilization, historical performance. All that stuff now is being examined or at least looked at with greater precision because documentation is. That may have been acceptable in soft market. Guess what? It's scrutinized now. Gaps that were previously overlooked are being priced in directly into risk. So if you have a well-positioned asset, this environment is favorable. Aircraft with consistent maintenance histories and complete records and clearly defined operating profiles, they're going to align much better with underwriting expectations. It's just way easier to deal with. They attract a much stronger interest from the underwriting market. There's more competitive terms and there's greater flexibility and coverage. For everything else, well, it can change. And that means if you're flying an aircraft that maybe has a small fleet, or maybe it's super old and it's coming up on a lot of maintenance requirements. Or maybe it's just gotten to the point where your mission profile is creating risk. See, there's all sorts of different things that can change the outcome. You have incomplete documentation, you could have deferred maintenance. You could have an uncertain history. Maybe the aircraft you're looking to buy was operated in a foreign country and the logbooks aren't in English, right? You can expect higher premiums if you get coverage at all. Because the more restrictive the terms are in some cases, it's going to limit access to the capacity. This is not an incremental shift, folks. It reflects a structural change in how this market is being segmented, how risk is being looked at. And as this approach becomes more embedded, I believe the gap between strong and marginal risk is going to continue to widen, which means the ⁓ older aircraft, they're going to be facing more exposure. Trust me, in this environment, is no longer sufficient. Another structural shift, because we've got to talk about everything, ⁓ is the increasing use of data and Historically, risk evaluation relied on standardized assumptions, broad categories based on aircraft type, age, general usage. Those inputs still matter, but let's be honest, they're no longer sufficient. Insurers are incorporating more granular data, and that changes how risk is assessed and eventually how it's priced to you. Because operational data, it's providing insight into how aircraft are actually used. And if you think about it, this happened in the car world, not just how they're categorized. Maintenance records can be evaluated not only for completeness, but for consistency, timing, adherence to recommended practices or service bullets. In some cases, you'll see behavioral indicators, how an aircraft is flown or how it's managed, how it's used, how it's maintained over time. And now it's going to be part of the underwriting framework. This shifts underwriting from approximation to real measurement, because when risk is measured with greater precision, the outcomes diverge. Aircraft that have been previously grouped in a single pricing assumption are now evaluated independently based on the quality of their data and the clarity of their operating profile. And that has direct implications for pricing because standardization gives way to dispersion. Instead of a narrow range of outcomes with a segment, pricing spreads to reflect differences between those assets. Uniform pricing is no longer the baseline. Pricing now reflects the specific characteristics of each risk, supported by data that allows insurers to make more precise and more defensible decisions. So let's talk about geopolitics and how it's changed the model. Because to understand where aviation insurance feels today, you have to look at geopolitical risk. Recent events fundamentally changed how exposure is defined. These were not conventional losses involving physical damage or operational failure. ⁓ Aircraft became legally and logistically inaccessible. That created a loss scenario that has not been fully modeled. That changed and expanded definition of risk. And this has direct implications for pricing infrastructure because cross-border Operations in certain jurisdictions now carry additional scrutiny. Terms may be more restrictive, limits may be defined, pricing adjusted to reflect that added uncertainty. Or they may just not renew you. I mean, let's just be honest. There's a lot of crazy things going on in the world right now. And these changes are not always visible at the policy level. But trust me, they're embedded. Look at your policy, look at how risk is selected, look at how you're being priced, because the result is broader. More complex and the definition of exposure has changed and pricing has adjusted accordingly. If you're looking at an aircraft and wondering, what is it actually worth? Well, don't guess. VREF it. VREF online gives you real time data. We give you quarterly updates and coverage across more than 900 aircraft models. And it's built on how market actually behaves, not how it's advertised. And this is the platform that every lender and insurance company Every serious operator relies on when the number has to hold up. So go to vref.com and VREF it before you make a decision on an aircraft today. Okay, ⁓ talk about what this means for owners because insurance can no longer be treated as a simple transaction. The outcome is now driven by how the asset is evaluated. And that's not added complexity. It's the pricing that reflects the asset. And for owners, The implications are pretty direct. So here's what you gotta do: preparation, documentation, and you gotta have all the maintenance. And it's gotta be disciplined. It's not just gonna affect the cost, but whether or not you can get coverage and how flexible it is. So before you go aircraft shopping, before you make an offer, before you put any money into escrow as a deposit, you better talk to a couple of brokers and make sure that you're gonna get insured. It's incredibly important, guys. You got to do this right up front. This should be one of your first steps. Insurance is getting that expensive that it's pricing some buyers out of the market completely. So I guess at the end of the day, insurance is no longer a passive requirement. It's now part of how the market prices your asset. And because of that, the evaluation could determine the outcome of whether or not you get insurance at all. So the market just isn't confusing. It's no longer forgiving. And I think there's one takeaway from this episode, and that is the insurance market hasn't broken. It's just recalibrated. And after a sustained period of elevated losses, capital didn't just exit. It didn't just say goodbye, but it becomes a lot harder to get. And it's a lot more segmented in how it's being deployed. And so the shift doesn't create instability, but it does create the necessary need for discipline. And capital constrained markets don't treat every asset the same way. They differentiate. They favor well documented aircraft who have consistent maintenance practices with good operators, with good track records. That's super important. Are you getting to an accident all the time? Are there always ramp issues? Is there hangar rash claims all the time? See, that causes problems long term. It makes it so that you're not insurable. Whether or not the terms adjust accordingly, that's something that you have to deal with up front. Like I said. Prepare. Make this a priority. Insurance isn't something that you should leave to the last second. Shop brokers, they're not all the same. That's why two aircraft that appear comparable at a high level can produce very different results across insurance, financing, and ultimately what you pay for it. This is not a market that rewards assumptions or shortcuts. It rewards preparation and clarity. If you found this episode helpful, please share it with someone who's approaching a renewal. or evaluating coverage in the current environment, because this podcast exists for one reason to analyze aircraft as capital assets without brokerage spin and without manufacturer narrative. And remember, when you need accurate, defensible, and data driven aircraft values, there's only one name in the industry to trust, and that's VREF Visit vref.com to VREF it today. And thank you for listening. I'm Jason Zilberbrand and this is the truth about the market. Until next time, fly safe and stay smart.