Downstream energy market struggles, upstream in good health: Willis Towers Watson report
There has been a decrease in underwriting capacity for the downstream energy market for the first time since 2001 and the prospects for this segment look bleak after a disastrous couple of years for insurers, Willis Towers Watson has claimed in a new report.
The broker, in its ‘Energy Market Review 2019’ report, suggests downstream energy capacity fell to $6.2 billion from $6.5 billion. It said this was caused by a number of factors, including continuing losses and the unprofitability of related sectors such as power, mining and renewables.
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.
In terms of profitability, the report said: “The prospects for this portfolio look bleak unless there is some improvement after what has been a disastrous couple of years for these insurers.”
In contrast, the upstream market enjoyed a marginal increase in the capacity available, which increase to $8.1 billion compared with $7.7 billion a year earlier. Upstream also had another mild loss year, stifling the hardening dynamic in this market. However, land rig and other onshore losses are currently causing insurer concern, the report noted.
But the upstream market has continued to generate underwriting profits, the report noted. Though it also said it would take much to change this should the current mild loss record deteriorate.
In terms of rates, the report suggested that 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, it said, but not so in downstream and construction, where the fight to survive for some insurers is now entering a decisive phase.
Graham Knight, head of Natural Resources GB at Willis Towers Watson, said: “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.”
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