New entrants drive competition in upstream energy
A combination of new entrants and more capacity committed by existing players has contributed to increased competition and pressure on rates in the upstream energy market, according to broker JLT.
It said that partly driven by an absence of large losses and low investment income, a notable trend in 2014 has been for markets to seek premium growth. This increasing pressure for syndicates to write and retain more of their premium income has begun to impact the treaty reinsurance market. Increasingly re/insurers are holding strategic dialogue meetings with brokers to determine how they can write more business, the report noted.
Some of the new entrants to the sector include Apollo, Ironshore, Endurance and Barents Re. In addition the insurer Lancashire has purchased an existing Lloyd’s Syndicate called Cathedral to enter the Lloyd’s market.
Meanwhile, some of the incumbent players in the market, including a number of Lloyd’s syndicates, have made significant increases in their capacity in 2014. These include Watkins Syndicate, which has increased its capacity from $100 million to $125 million, Catlin Syndicate, which has increased its capacity from $170 million to $200 million and Ace, which has increased its capacity from $200 million to $250 million.
As a consequence of these changes, JLT estimates that the theoretical maximum capacity for a single risk has increased in 2014 from just over $4.5 billion in 2013 to just over $5.5 billion. It does not expect all of this additional capacity to be recognised for conventional risks, however, as it believes it will only be utilised in full on large scale construction projects and platforms with large capacity requirements.
“As this additional capacity will be applied selectively, for mid-size to small accounts there is now greater pressure on underwriters to secure premium income and the result of this increased competition is significant rate reductions,” the report added.
