Energy sector drawing strong insurer capacity to stabilize market: WTW
Major lines in energy sector insurance are enjoying abundant capacity sufficient to stabilize the market as a whole, albeit as a gulf rises between the best accounts and a rump field of less sought risks, analysts at global insurance brokerage WTW have claimed.
“Capacity across all of the energy occupancies is still abundant, albeit stabilising,” Graham Knight, WTW’s head of natural resources global lines, said of the market’s state of play.
“The energy insurance market is ready to provide us all with some much-needed stability and certainty with the balance of power once again shifting in buyers’ favour.”
But that isn’t a particularly unified story for the energy sector market and Knight and his sub-sector associates all speak to a “story of two halves” with a widening desirability gulf emerging between the best and the rest.
An increasing amount of available risk and performance data has insurers picking and choosing accounts with a better view to the most desirable risks, WTW analysts wrote.
“This new, deeper insight has resulted in a homogenisation of risk appetite amongst carriers, with a strong drive from most markets to grow the same, highly desirable ‘upper tier’.”
But that upper tier isn’t so very abundant and WTW claims there isn’t enough to satisfy the appetite of all global energy insurance markets.
In the upstream sub-segment, capacity has remained “largely stable” with capacity increases from existing carriers “more moderate” in both number of carriers and sums, “which points to a stabilisation of the upstream market capacity,” analysts wrote.
New entrants, absent of late, might yet turn up during the course of 2024, WTW authors claimed, citing expectations from both new MGAs and existing carriers that have set up new ESG vehicles.
Discipline is holding up despite talk of capacity as “markets remain reluctant to challenge existing leaders.”
“Until some of this discipline unravels and new leaders emerge, we are unlikely to see universally offered rate reductions on the upstream book of business as most of the portfolio is already well subscribed to by the current leadership candidates,” authors wrote.
Some recent renewal jolts and a move towards increased captive use in the industry has further tilted the supply-demand equation towards buyers, analysts added.
In the downstream sub-segment, capacity has “remained stable” with line size growth from some carriers offsetting a reduction in working capacity being utilised by others.
“Overall, this continued stability of capacity is good news for buyers as there is still plenty of capacity for most risks, and we continue to see the best placements being significantly oversubscribed,” authors wrote.
M&A in the downstream fuels market is a threat to premiums as "one plus one rarely equals two," WTW said. Continued heavy use of captives is also a drag on demand.
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