Contrasting fortunes within energy markets
Some insurers may be on the cusp of withdrawing from the downstream energy market following two years of poor results, despite a mild hardening of rates caused by recent natural catastrophe losses, according to a report by Willis.
“An atmosphere of pessimism seems now to hold sway in the downstream energy insurance market following two poor underwriting years in succession,” said the Willis Energy Market Review 2013. “Although capacity levels continue to increase, past history suggests that if one or two leading insurers withdraw from this class, others may follow suit.”
In contrast, the upstream energy market has proved consistently profitable in recent years, recording excellent results for premium income and loss record in 2012. But the review warns that softening is likely.
“It appears that good news may now be on the horizon for the majority of upstream energy insurance buyers,” said Alistair Rivers, chief executive officer, Willis Global Energy. “However, the downstream market remains mired at the bottom of the underwriting cycle; although as yet there have been no major withdrawals, another poor loss year in 2013 will surely cause some insurers to think seriously about a change of underwriting strategy.”
The energy industry as a whole continues to face significant and complex supply chain exposures, with a lack of information regarding the risk profile of key suppliers partly to blame.
This has hampered the application of effective risk management strategies and the review by Willis suggests that energy companies consider implementing a business continuity plan to manage this more effectively.
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