May 24, 2006 by Canadian Underwriter
The energy insurance market has proven its resilience despite the large losses of 2005, according to the Energy Market Review published by Willis Group Holdings (NYSE:WSH).
However, the report notes that with numerous changes and challenges affecting the industry, it is currently unclear whether the market could be as successful if the 2006 storm season is as severe as 2005.
In the report, Willis clearly defines the rating, capacity, deductible and other conditions of the current offshore, onshore, marine reinsurance, power generation, third party liability, and terrorism markets.
Specifically, the report indicates that if Katrina, Rita and Wilma had struck a few years ago the size of the claims would have led to a “total capacity melt-down.”
However, Willis says that “since 9/11 the strength of the industry’s recovery is such that last year’s hurricanes were essentially earnings depleting events that did not significantly change the capital base of the industry.”
Despite this relative strength, Willis says that the next seven months will determine whether the market can withstand a repeat of the events of 2005.
The review found that the 2005 hurricanes emphasized the need for a significant technical re-evaluation of the upstream market; while other key findings point to the “widening gulf” between the onshore and offshore markets.
Phillip Ellis, chairman of Willis’ Global Energy Practice, says that due to the shock waves felt as a result of last year’s storm season the industry is now facing an “extended season of change in how we conduct our business.”