Key insurance market findings from the review include:
- Capacity: Market capacity appears to be fluctuating, with a marginal increase in the Upstream market (from US$7.7bn to US$8.1bn) but also the first decrease in the Downstream market (from US$6.8bn to US$6.2bn) since the aftermath of the 9/11 tragedy.
- Losses: Upstream has had another mild loss year, stifling the hardening dynamic in this market. However, land rig and other onshore losses are currently causing insurer concern. In contrast, the Downstream market has had another gruelling loss year, while the recent twin losses emanating from Darwin, Australia are causing serious concern in an already reeling Construction market.
- Rating levels: Except where sought after programmes have been extensively re-modelled, or where risk profiles have significantly changed, almost every programme will now be subject to some form of rating increase (with the one exception of the growing energy insurance market in China). In the Upstream and Liability markets, these are generally relatively mild; not so in Downstream and Construction, where the fight to survive for some insurers is now entering a decisive phase.
- Profitability: On balance, the Upstream market has continued to generate underwriting profits, although we don’t believe it would take much to change this should the current mild loss record deteriorate. For Downstream however, the prospects for this portfolio look bleak unless there is some improvement in what has been a disastrous couple of years for these insurers.
Graham Knight, Head of Natural Resources GB at Willis Towers Watson, commented: “This year’s Energy Market Review highlights the inherent volatility in our insurance markets, which are now showing increasing signs of hardening. In this challenging market environment, we have to adjust to the way in which energy industry risks are identified, collated and presented to insurers in an era where “Big Data” is king, and we have to be relentless in our pursuit of fresh ideas that produce valuable new products and services for the energy industry.”
The report also addresses a number of industry concerns including the increase in geopolitical risks such as cyber risk and trade and political risk volatility, all of which are increasingly causing concern to energy clients. The report highlights the increasing risk of governmental regulatory change around climate resilience which may impact heavily on the energy sector.
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