Across all Energy markets the trend towards hardening market  conditions and increasing rates continues, however each market is unique - so tells it’s own tale as to why we are seeing these changes.

Q1 2019 reveals some significant market reactions in both Upstream and Downstream markets. Our review uncovers what factors have led to a gradual hardening in the Upstream market. We also investigate why insurers are redeploying their capacity away from the Downstream market to more profitable lines of business after another year of global Downstream losses.

Upstream market

The Upstream market on the whole had resisted increases during 2018, however this has started to slowly change in Q1 2019 with the market gradually hardening, despite a small increase in market capacity and another benign loss year. Increases in this market have been down to a variety of factors, including a poor loss record in some upstream sectors (for example, onshore contractors - specifically those undertaking fracking activities), scrutiny from Lloyd’s of London and internal company management, poor loss records in related sectors (such as Hull) and a centralisation of underwriting with some insurers withdrawing regional expertise and some regional insurers withdrawing from the market.

Downstream market

The Downstream market is seeing the largest market reaction, with rate rises in the region of 5-15% (10% increases even for loss free non CAT [1] exposed clients). This is hardly surprising following global losses in 2017 and 2018, which are estimated to stand at USD5bn and USD3bn respectively, with 2017 being the worst year on record (excluding the windstorm years of 2005 and 2008), since the turn of the century. With the market only having made money three times in the last 10 years, insurers are redeploying their capacity to more profitable lines.

The Power market

The poor performance of the Power market saw Lloyd’s place the power generation insurance risk code under review, with the outcome being that the majority of underwriters in this class had their business plans signed off, but with reduced income limits (2018 saw losses breach USD2bn). As such, we have seen rates in 2019 increase in the range of 5-15% and also seen a number of markets (including Allianz, Munich Re, Zurich, AXA XL) distance themselves from writing coal fired risks, making those standalone risks without a mix of other power generation assets, very challenging to place.

Oil Insurance Limited

In 2018 OIL experienced its most challenging loss year in since 2008. Some members are seeing 30% increases in 2019 premium, and 60% increases in theoretical withdrawal premium (TWP) liability. There is also a continued focus on accounts with Natural Catastrophe (Nat Cat) exposure and the extent of BI/CBI [2] exposure.

[1] Catastrophe (CAT)
[2]  Business Interruption / Contingent Business Interruption

KeyFacts Energy Industry Directory: Alesco