The report also covers the volatility of the energy sector, with commodity prices surging to record levels arising from higher demand as economies emerged from the COVID-19 pandemic, as well as a concern around higher inflation rates. However, the report also highlights that, although hardening conditions in the Energy insurance markets are easing, energy companies will need better data, more convincing ESG strategies and careful monitoring of underwriting trends to manage any future market volatility.
The Report also outlines the following developments in the Energy insurance markets:
- Upstream capacity: total global capacity for 2022 has reached yet another record level, now standing at nearly US$9.4 billion, up from US$9.25 billion in 2021.
- Downstream capacity: For International (non-North American) business overall capacity now totals US$6.3 billion up from US$6.1 billion in 2021, while for North American risks total capacity has now increased to US4.1 billion, from US$4.0 billion in 2021.
- Liability capacity: International Liability capacity has now increased to US$2.9 billion, up from US$2.6 billion in 2021.
- Profitability: In general terms, most Energy lines of business returned to profitability in 2021, resulting in an easing of the ongoing hardening market conditions.
- Rating levels: In all lines of business, rating level percentage increases are significantly less than in 2021 and in some cases “flat” (or even better) renewal terms are now being secured. However, a combination of factors is preventing a wholesale market softening, including restricted insurer leadership options and concerns regarding the effect of the situation in eastern Europe on premium income streams.
Graham Knight, Head of Global Natural Resources, WTW, said: “At the moment, the scales are finely balanced in all our markets; on the one hand most portfolios have returned to profitability, while on the other, the absence of any fresh underwriting leadership and a reluctance of insurers to “break ranks” is preventing brokers from forcing through any fundamental changes in market dynamics. How the markets react to premium income depletion as a result of sanctions and a short term increase in fossil fuel activity remains to be seen. In the meantime, the energy transition will wait for no one; every risk manager involved in the industry will need to address the uncertainties arising out of both the new geopolitical landscape and the mounting momentum towards achieving Net Zero emissions targets.”